Bridging lender margins grow strongly as politics dominates outlook

The Link Asset Services report found concerns were largely related to Brexit and a possible change in government, however, confidence is overall high among real estate lenders, the trend report found.

Encouragingly, almost three quarters of lenders expect to increase the amount of loans originated over the next 12 months and more than half were planning to expand their team size.

The majority of providers expected interest rates to rise this year, while loan margins were expected to remain stable.

Higher risk lending categories such as mezzaine, bridging and preferred equity finance have seen the highest rise in margins.

Income covenant requirements (ICRs) on investment loans have eased in the last year, making it possible for borrowers to access more capital.

Insurers, for example, have seen a drastic change in their underwriting criteria, lowering their ICR from an average of 200% in 2017 to 185% in 2018.

Time to access finance increases

The report also showed the time taken to access finance has increased as some of the UK’s largest lenders continue to adapt to a raft of regulatory changes and internal restructuring.

It now takes 53 days on average to get a commercial real estate loan in the UK, from agreeing terms to drawdown of funds, this is a seven day increase on last year.

James Wright, head of real estate finance at Link Asset Services said: “The story is one of lenders learning to live with political uncertainty and adapting lending practices accordingly.

“We look set for an increase in lending activity in 2018, with current political risk not enough to undermine confidence.

“One way in which lenders have adapted is by doubling down on low risk senior finance. We have seen margins lower on senior debt but rising on riskier lending products.”

He added: “In addition, this year lenders want to do relatively more lending in commercial sectors in comparison to residential, where they see greater risk to values in the year ahead.”