The total commercial property lending market in the UK contracted to around £290 bn (EUR 329 bn) last year from £305 bn in 2009, delegates at a recent Investment Property Forum event in London heard.

According to Bill Maxted of De Montfort University, author of the UK Commercial Property Lending Market Survey, estimated that £45 bn of loans were in default last year compared to £57 bn at end-2009. This was mainly due to UK property loans from the Irish banks being transferred to NAMA, Ireland's bad bank scheme for property loans.

Maxted said there was definitely light at the end of the tunnel. 'We are four years into a recession and financial organisations are saying it could take another five years to sort out their loan books - the light is at the end of the tunnel, but we can't say yet how long that tunnel is.'

He noted that 82% of lending in 2010 came from just 12 organisations with German banks taking a far stronger position than in previous years. 'In 2009, 34 institutions indicated they intended to increase their lending, but in the event only 22 did. Credit committees were often approving only 25% of viable applications due to capital rationing and taking a very selective stance.'

The research revealed that of the total loan book, some 38% was designated as prime and 62% as secondary level property. It was estimated that some 12% of loans, around £24 bn, were in breach of financial covenants and the most common fault was the loan to value covenant which accounted for 44% of the total.

After falling from average peak levels of 75-80% in 2006, loan-to-value ratios were more stable and tended to be in the range of 60-65% in 2010.

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