US banks slashed share of British property loans before Brexit

[LONDON] North American banks cut their share of UK commercial-property lending by half ahead of the referendum on European Union membership as uncertainty about the vote and a cooling market damped demand for real estate.

US banks and Canadian lenders' market share dropped to seven per cent from 14 per cent in the first six months, according to a survey of 78 lenders by De Montfort University that was published Monday.

UK banks and member-owned lenders advanced 44 per cent of all new loans, a 10 percentage point increase on the previous six months, the report by the Leicester, England-based university estimates.

North American banks were concerned about Brexit because the increased risk meant they could find it harder to sell-on the loans, Nassar Hussain, managing partner of real estate credit adviser Brookland Partners LLP, said in an interview.

Capital-market volatility sparked by fears over Chinese growth had also "killed off" the market for commercial mortgage-backed securities, used by investment banks to get loans off their balance sheets and free-up capital, during the period, he said.

Purchases of UK commercial property fell by almost half to 29.5 billion euros (S$45.0 billion) in the first half as investor concern about the referendum and high values slowed deals, researcher Real Capital Analytics Inc said in July.

The overall volume of new loans fell 13 per cent to 21.4 billion pounds in the period from a year earlier, the De Montfort survey shows.

"The reduction in new loan originations and activity reflects the general market slowdown we have seen so far this year," said Ion Fletcher, director of finance policy at the British Property Federation lobby group.

"Uncertainty ahead of the EU referendum may have played a part, but the property market was cooling off anyway."

The value of defaulted loans on lenders' books fell by more than half to 4.5 billion pounds from the end of 2015.

The problem loans were almost exclusively advanced before 2009 and no significant breaches had occurred on more recent loans, the federation said by e-mail.

BLOOMBERG