LONDON May 17 Almost a quarter of commercial
property loans in Britain are higher in value than the
underlying real estate, a study showed on Friday, highlighting
the toxic legacy of reckless lending before the financial crash.
The figure grew to 23 percent at the end of 2012 from 20
percent a year earlier, according to De Montfort University, or
about 45 billion pounds ($68.5 billion) of a total of some 195
The increase means the worst-quality loans are deteriorating
as property prices drop in many parts of the country,
exacerbating the problem for banks as they attempt to purge
their books of property debt amassed during years of profligate
lending in the run-up to the crash.
The rise was due to the severity of Britain's economic slump
outside London and means banks hold a growing number of
poor-quality loans that will hinder attempts to clean up their
The so-called loan-to-value ratio typically rises above 100
percent when the value of a property falls, potentially
triggering a breach in the loan deal, which banks can waive if
they believe property markets will recover.
While property values have recovered since the crash in
London, driven by global investors seeking a safe place to park
cash, other areas of the country have experienced falls of 40 or
50 percent, with prices still falling in many areas as the
British government struggles to kickstart economic growth.
"Banks have good, bad and ugly loans but the ugly is getting
uglier," said Philip Cropper, an executive director and debt
specialist at property consultant CBRE. "It means a more
protracted clean-up for the banks."
The issue also means lenders will increasingly curb credit
for all but the safest deals and the most blue-chip of
developers, widening the gulf further between London and the
rest of the country, said Peter Cosmetatos, director of policy
at the British Property Federation.
Banks including Lloyds and RBS have sold
portfolios of real-estate debt at steep discounts to investors
like Blackstone and Lone Star in recent years as the
clean-up process began and the report shows steady progress.
Outstanding property debt for all types of lenders shrank by
7.7 percent last year from 214.4 billion pounds to 197.9
The De Montfort study was based on data from 78 of the
biggest lenders in the UK.