Three-quarters of UK lenders anticipate a decline in commercial property prices during the current year, with commercial values expected to slide by more than 2.5% by next January.
The outlook is also poor for residential property, with 61% of UK lenders expecting price contraction in this sector over the period.
Political risk is the dominant factor in explaining the loss of confidence in property markets according to the latest Real Estate Market Trend analysis report by Link Asset Services, a specialist in payments processing and financial infrastructure.
Uncertainties associated with Brexit represent the biggest threat to commercial real estate markets, according to survey respondents, with 51% believing this will trigger a decline in pricing levels.
In these conditions, lenders are looking to finance bigger ticket sizes and typically the best loan prices are offered against larger transactions. The average loan size for investment loans has grown from £134 million in 2017 to £226 million in 2019.
Lenders are also looking to lend for longer terms, with supply currently outpacing demand for long-term loans of 10 or more years.
However, lending terms of 3 to 5 years remain the most-commonly supplied type of finance, according to the survey.
James Wright, Link Asset Services’ Head of Real Estate Finance, says that lenders are responding to testing conditions by concentrating on their core markets and products and this will remain the case until political and economic conditions stabilise and there is greater certainty around the UK’s relationship with the EU.
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