Lending to commercial property ''stabilising'' commercial mortgages

14 May 2007

Bank lending to the UK''s commercial property industry is showing signs of stabilising on the back of recent interest rate increases, according to new data from the Bank of England (BoE).

BoE data reveals that net new lending to commercial property industry members was largely unchanged in the first quarter of 2007 compared to the same period in 2006, sitting at £6.6 billion. This is indicative of a commercial property market cooling, stemming from base rate hikes.

In light of these developments companies with commercial mortgages in the UK can expect further cooling into 2007, which could lead to more expensive mortgage products in the future.

"This simply adds further weight to our view that the commercial property market will cool this year," Kelvin Davidson of Capital Economics told Reuters.

Figures state that average initial yields on UK commercial property have dropped from near 5.4 per cent in the third quarter of 2005 to 4.6 per cent at present.

A poor performance in the UK Reits market has been highlighted as a main contributing factor in the end of a boom in UK commercial property.