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Commercial Mortgages - UK - July 2016

“In the wake of the EU referendum decision, some lenders have stated that it remains too early to announce any changes to their respective mortgage offerings, while others have already changed their rates. However, the appeal of commercial and semi‑commercial property may have risen as these asset classes do not incur the same stamp duty surcharge imposed upon residential property, offsetting some of the recent downward pressure on mortgage demand.”

– Lewis Cone, B2B Analyst

This report answers the following issues:

  • How has the UK’s decision to leave the EU already affected the market? What further consequences lie ahead?
  • Which other factors have influenced development?
  • How has commercial property investment changed over recent times?

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Table of contents

  1. Executive Summary

      • Market size
        • Upward pressure on yields due to uncertainty
          • Debt rises for first time since 2008
            • Figure 1: Aggregated Value of Outstanding Debt in Loan Books Secured on UK Commercial Property, 201115, (£ Billion)
          • Loan originations continue to rise, but uncertainties could derail momentum
            • Figure 2: Gross Value of Annual Loan Originations, 2011-15, (£ Billion)
          • Market factors
            • ‘Brexit’ will change the mortgage market, but exact impact is unclear
              • Commercial lending rates show initial signs of rising over 2016
                • Figure 3: Average Interest Rate for UK MFI New Advances to PNFCs, at April in 2012-16, (% Not Seasonally Adjusted)
              • Commercial property transactions on the rise
                • Figure 4: Number of Non-Residential Property Transactions, 2011-15, (Number, Seasonally Adjusted)
              • Market trends
                • Return on Property Investment
                  • Figure 5: IPD UK Annual Property Index, December 2014 and 2015, (December 1980 = 100)
                • Development of Commercial Property Yields
                  • Alternative lenders increasing market presence
                    • Industry structure
                      • Challenger banks on the rise, but still lack the clout of existing major groups
                        • Increase in regulation leading change in mortgage lending activity
                          • Forecast
                            • Lower economic growth and interest rates will impact mortgage lending
                              • Figure 6: Forecast Gross Value of Annual Loan Originations, 2016-20, (£ Billion)
                            • Total value of outstanding debt set to rise alongside short-term market uncertainty...
                              • Figure 7: Forecast Value of Outstanding Debt in Loan Books Secured on UK Commercial Property, 2016-20, (£ Billion)
                            • What We Think
                            • Key Insights

                                • How has the UK’s decision to leave the EU already affected the market? What further consequences lie ahead?
                                  • Which other factors have influenced development?
                                    • How has commercial property investment changed over recent times?
                                    • Introduction

                                        • Definitions
                                          • Methodology
                                            • Abbreviations
                                              • Market positioning
                                                • The supplier
                                                  • The customer
                                                  • UK Economy

                                                    • Key points
                                                      • Overview
                                                        • Figure 8: UK GDP, 2005-2015, (% Quarterly Growth and GDP in £ Billion)
                                                        • Figure 9: UK Output, by Industry, 2008-2016, (Index 2012 = 100)
                                                        • Figure 10: Quarters after GDP Peak, 1979, 1990 and 2008, (Number of Quarters and GDP as % of PreDownturn Peak)
                                                      • Inflation
                                                        • Interest rates
                                                          • House prices
                                                            • Figure 11: UK House Price changes, 2004-2016, (12-month % change)
                                                          • Consumer spending
                                                            • Manufacturing
                                                              • Figure 12: UK Manufacturing, 2013-16, (Index, 2012 = 100)
                                                            • Business investment
                                                              • Figure 13: UK GFCF 2005-15, (£ Million)
                                                            • Imports
                                                              • Exports
                                                              • Market Factors

                                                                • Key points
                                                                  • Market uncertainty likely to drive slowdown in growth
                                                                    • Figure 14: GDP growth rate, Q1 2012-Q1 2016, (% change on previous quarter)
                                                                    • Figure 15: GDP Growth Rate, Q1 2012 - Q1 2016, (% change on previous quarter)
                                                                  • Brexit will change the mortgage market, but exact impact is unclear
                                                                    • Commercial lending rates show initial signs of rising over 2016
                                                                        • Figure 16: Average Interest Rate for UK MFI New Advances to PNFCs, at April in 2012-16, (% Not Seasonally Adjusted)
                                                                        • Figure 17: Average Interest Rate for UK MFI New Advances to PNFCs, at April in 2012-16, (% Not Seasonally Adjusted)
                                                                      • Commercial property transactions on the rise
                                                                        • Figure 18: Number of Non-Residential Property Transactions, 2011-15, (Number, Seasonally Adjusted)
                                                                        • Figure 19: Number of Non-Residential Property Transactions, 2011-2015, (Number, Seasonally Adjusted)
                                                                      • Write offs on loans to non-financial companies fell sharply in 2015
                                                                        • Figure 20: Loan Write-offs to PNFCs from Banks and Building Societies, 2011-15, (£ Million, Not Seasonally Adjusted)
                                                                        • Figure 21: Loan Write-Offs to PNFCs from Banks and Building Societies, 2011-2015, (£ Million, Not Seasonally Adjusted)
                                                                      • Business confidence has dramatically fallen for the first time since 2013
                                                                        • Figure 22: Business Confidence Index, per Half-Year, 2005-2016, (Index Figure)
                                                                        • Figure 23: Business Confidence Index, per Half-Year, 2005-2016, (Index Figure)
                                                                      • Availability and demand for credit from large corporate sector declines in 2016
                                                                        • Figure 24: Availability of Corporate Credit to PNFCs in the Last Three Months, Q1 2010- Q1 2016, (Net Percentage Balance)
                                                                        • Figure 25: Availability of Corporate Credit to PNFCs in the Last Three Months, Q1 2010- Q1 2016, (Net Percentage Balance)
                                                                        • Figure 26: Demand for Corporate Credit by PNFCs in the Last Three Months, Q1 2010 - Q1 2016, (Net Percentage Balance)
                                                                        • Figure 27: Demand for Corporate Credit by PNFCs in the Last Three Months, Q1 2010 - Q1 2016, (Net Percentage Balance)
                                                                      • Impact of planning laws on commercial property supply
                                                                      • Commercial Mortgage Market Size

                                                                        • Key points
                                                                          • Investment levels have possibly hit a peak
                                                                            • Upward pressure on yields due to uncertainty
                                                                              • Debt rises for first time since 2008
                                                                                • Figure 28: Aggregated Value of Outstanding Debt in Loan Books Secured on UK Commercial Property, 201115, (£ Billion)
                                                                                • Figure 29: Aggregated Value of Outstanding Debt in Loan Books Secured on UK Commercial Property, 201115, (£ Billion)
                                                                              • Loan originations continue to rise, but uncertainties could derail momentum
                                                                                • Figure 30: Gross Value of Annual Loan Originations, 2011-15, (£ Billion)
                                                                                • Figure 31: Gross Value of Annual Loan Originations, 2011-15, (£ Billion)
                                                                            • Commercial Mortgage Market Segmentation

                                                                              • Key points
                                                                                • UK banks and building societies’ share of new loan originations declines
                                                                                  • Figure 32: Gross Value of Loan Originations, by Allocation, 2011-2015, (% of Total)
                                                                                  • Figure 33: Gross Value of Loan Originations, by Allocation, 2011 and 2015, (% of Total)
                                                                                • Offices and retail property still dominate the share of loans allocated, but the industrial and hotel sectors are strengthening their market share
                                                                                  • Figure 34: Allocation of Outstanding Loans to Investment and Owner-occupied Property, by Type of Use, 2014, (£ Billion)
                                                                                • Regional analysis of commercial property transactions
                                                                                  • Figure 35: Commercial Property Transactions in Great Britain, by Region, 2013-16, (£ Million)
                                                                                  • Figure 36: Commercial Property Transactions in Great Britain, by Region, 2015, (£ Million)
                                                                              • Commercial Borrowing

                                                                                • Key points
                                                                                  • Net lending reaches a 10-quarter peak in Q1 2016
                                                                                      • Figure 37: UK MFIs’ Net Loans to Non-Financial Businesses, Q4 2013 - Q1 2016, by Size of Business, (£ Million, Not Seasonally Adjusted)
                                                                                      • Figure 38: UK MFIs’ Net Loans to Non-Financial Businesses, Q4 2013 - Q1 2016, by Size of Business, (£ Million, Not Seasonally Adjusted)
                                                                                    • Funding for Lending scheme extended with focus still on small business finance
                                                                                    • Market Trends

                                                                                      • Key points
                                                                                        • Return on property investment
                                                                                          • Figure 39: IPD UK Annual Property Index, December 2014 and 2015, (December 1980 = 100)
                                                                                          • Figure 40: IPD UK Annual Property Index, December 2014 and 2015, (December 1980 = 100)
                                                                                        • Development of commercial property yields
                                                                                          • Figure 41: Prime Market Yields, by Sector, 2013-16, (%)
                                                                                        • Alternative lenders increasing market presence
                                                                                          • Figure 42: Alternative Lenders’ Activity, by Loan Allocation, 2013 and 2014, (% of Total)
                                                                                          • Figure 43: Alternative Lenders’ Activity, by Loan Allocation, 2013 and 2014, (% of Total)
                                                                                      • Brand Communication and Promotion

                                                                                        • Key points
                                                                                          • Bank ad spend abandoned and diverted towards restoring reputation following recession
                                                                                            • Figure 44: Advertising Expenditure on Commercial Mortgages, 2010-16*, (£000)
                                                                                          • Press advertising accounts for highest channel spend
                                                                                            • Figure 45: Advertising Expenditure on Commercial Mortgages, by Media Type, 2010-16*, (£000)
                                                                                        • Industry Structure

                                                                                          • Key points
                                                                                            • Industry development
                                                                                              • Challenger banks on the rise, but still not at the stage to compete with the existing major groups
                                                                                                • Increasing regulation leading to change in mortgage lending activity
                                                                                                  • The number of banks and building societies has remained largely unchanged since 2013
                                                                                                    • Figure 46: Number of Banks and Building Societies Operating in the UK, 2013-2016, (Number)
                                                                                                    • Figure 47: Number of Banks and Building Societies Operating in the UK, 2013-2016, (Number)
                                                                                                • Company Profiles

                                                                                                  • Aldermore Bank

                                                                                                        • Figure 48: Financial Analysis of Aldermore Bank plc, 2011-15, (£ 000)
                                                                                                      • Company strategy
                                                                                                      • Barclays PLC

                                                                                                            • Figure 49: Financial Analysis of Barclays plc, 2011-15, (£ Million)
                                                                                                          • Company strategy
                                                                                                          • HSBC

                                                                                                                • Figure 50: Financial Analysis of HSBC Bank, 2011-15, (£ Million)
                                                                                                              • Company strategy
                                                                                                              • Lloyds Banking Group

                                                                                                                    • Figure 51: Financial Analysis of Lloyds Banking Group, 2011-15, (£ Million)
                                                                                                                  • Company strategy
                                                                                                                  • Principality Building Society

                                                                                                                        • Figure 52: Financial Analysis of Principality Building Society, 2011-15, (£ Million)
                                                                                                                        • Figure 53: Principality Building Society Commercial Lending Segment Analysis, 2015, (£ Million)
                                                                                                                      • Company strategy
                                                                                                                      • Royal Bank of Scotland Group

                                                                                                                            • Figure 54: Financial Analysis of RBS Group, 2011-15, (£ Million)
                                                                                                                          • Company strategy
                                                                                                                          • Santander UK PLC

                                                                                                                                • Figure 55: Financial Analysis of Santander UK plc, 2011-15, (£ Million)
                                                                                                                              • Company strategy
                                                                                                                              • Shawbrook Bank

                                                                                                                                    • Figure 56: Financial Analysis of Shawbrook, 2011-2015, (£ 000)
                                                                                                                                  • Company strategy
                                                                                                                                      • Figure 57: Profiled Companies’ Combined Turnover, 2011-2015, (£ Million)
                                                                                                                                  • Commercial Mortgage Forecast

                                                                                                                                    • Key points
                                                                                                                                      • Lower economic growth and interest rates will impact mortgage lending
                                                                                                                                        • Figure 58: Forecast Gross Value of Annual Loan Originations, 2016-20, (£ Billion)
                                                                                                                                        • Figure 59: Forecast Gross Value of Annual Loan Originations, 2016-20, (£ Billion)
                                                                                                                                      • Total value of outstanding debt set to rise alongside short-term market uncertainty...
                                                                                                                                        • Figure 60: Forecast Value of Outstanding Debt in Loan Books Secured on UK Commercial Property, 2016-20, (£ Billion)
                                                                                                                                        • Figure 61: Forecast Value of Outstanding Debt in Loan Books Secured on UK Commercial Property, 2016-20, (£ Billion)
                                                                                                                                      • ... but uncertainties could still peak foreign-led property acquisitions
                                                                                                                                        • Stamp duty changes
                                                                                                                                        • Further Sources and Contacts

                                                                                                                                          • Trade Associations
                                                                                                                                            • Trade Magazines
                                                                                                                                              • Trade Exhibitions

                                                                                                                                              Companies Covered

                                                                                                                                              To learn more about the companies covered in this report please contact us.

                                                                                                                                              Commercial Mortgages - UK - July 2016

                                                                                                                                              £995.00 (Excl.Tax)