Commercial property warning - commercial mortgages

01 December 2006

A Bank of England (BoE) official has urged investors in commercial property, including those with commercial mortgages, to prepare in case a downturn in the market occurs.

Nigel Jenkinson, executive director for financial stability at the bank, said that although investors were in a significantly better position than during the last market depression, it is advisable to consider potential causes of a decline in property prices, Reuters reports.

"[The] exceptional buoyancy of recent conditions in commercial property markets and the associated rise in leverage do suggest some build up in vulnerabilities and so warrant careful risk management by market professionals," he said.

The BoE states that lending to investors in the property market has increased by 15 per cent during the last twelve months, accounting for a third of overall lending to private non-financial companies in the UK.

Mr Jenkinson drew parallels with the last property crash during the 90s when 25 UK banks were forced to close having reached an unsustainable level of lending on commercial property, the Times reports.