Alibek Issaev on London Mortgage Market Aiding Middle East Commercial Property Investors
Welcome to the Alibek Issaev blog. Alibek Issaev is a leader in real estate services, powered by his entrepreneurial spirit. Today, we share about how UK property lending market is still largely stable as a result of pressure on interest cover ratios (ICRs) and debt yields.
According to report, the UK property lending market is largely stable despite the Bank of England’s decision to raise interest rates, from 0.5% to 0.75%, for only the second time in a decade, lending market stability is leading to some lenders offering lower leverage to borrowers when they refinance, ultimately creating opportunities for Middle East investors.
The research from the CASS Lending Survey notes that 73% of all outstanding debt is due for repayment in the next five years, with loan maturities set to peak in 2020 due to the large volume of loans drawn in 2015. This could cause some borrowers to seek alternative sources of finance, especially if values soften in the interim. With yields already low it will be challenging to replicate existing levels of leverage if sustainable ICRs are to be maintained. This will inevitably lead to lower loan to values (LTVs) which could prompt some stress at the point of refinancing.
While many banks either can’t or won’t increase LTVs due to regulatory restrictions and prudence, ‘alternative lenders’ could be attracted to such borrowers as they look to offer increased leverage at higher margins, although much will depend on the track record of the borrower. The next three to four years could therefore offer tremendous opportunities for alternative lenders and will further hasten the move of property debt from traditional banks to the alternative sector has identified approximately 100 lenders. In 2008 it says that the alternative sector accounted for circa 5.0% of lending – by 2017 this had increased to 25%, and this is deemed a conservative estimate.
Whilst, new origination levels were broadly stable in 2017 at £44.5 billion. 51% of total origination was refinancing and 49% was new acquisitions, indicating that lenders are replacing their maturing loans with new lending but not expanding significantly. In 2017, non-bank lenders increased origination by 21% in value terms compared to only 3% by UK banks. However, origination activity dropped 34% amongst foreign banks (excluding German and North American institutions), largely due to increased competition and a scarcity of large core transactions.
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