The Money Picture

Money1st May 2013


The Money Picture


By Lance Turner, Director, Agency


From a commercial property viewpoint an easing of credit and availability of finance for property lending will provide some real impetus to growth. My colleague Neil Slade talked about a shortage of new development where demand exists but credit is difficult and I thought it was worth supporting Neil’s piece with a little more detail.
Well the headline from the latest Ernst & Young Item Club that “The crippling credit crunch is loosening” certainly seems to be a pointer that the availability of credit may be getting a little easier.
There is little doubt that the ongoing credit crunch and crisis in the Banks continues to affect business thinking nearly 5 years on from the start of the world’s economic woes. The effects on property both commercial and residential are well catalogued and there for all to see – not least the retreat of values!
It is not an argument for inflating property values – what we need is more financial liquidity in the market to ‘make things happen’.
The Item Club lays bare some of the statistics around the credit crunch. Part of their commentary was how UK Banks borrowed “£900 billion” that was borrowed from overseas up to 2008 and how we’ve been paying the price ever since as the UK reigns back from the £100 billion a year that Banks were using to fund domestic lending.
The Item Club explain that once it happened, the breakdown in the funding markets triggered several other crucial factors. Secondary banking subsidiaries had to be supported, straining capital adequacy ratios. Loan losses had the same effect. Bank boards, as well as their shareholders and regulators, became very risk-averse as the losses mounted. Tougher capital and liquidity requirements exacerbated the lending squeeze. The ensuing recession made Banks even more worried and of specific concern for those earning their money in the property market, about the solvency of mortgage borrowers and small businesses. Lending was depressed because the economy was depressed and vice versa, a classic vicious circle.
The Item Club thinks the background of tight credit and the Banks’ liquidity issues may be coming to an end with credit and liquidity requirements having been relaxed. The Bank of England’s new Funding for Lending Scheme is designed to increase the flow of credit and reduce its cost, increasing the funding gap, or at least slowing the speed at which it is paid down. It will reinforce the effect of the revival of the UK mortgage-backed securities market seen in recent weeks.
Ernst & Young say that ‘Although banks remain very risk-averse, they are effectively shifting the risk lending to affluent home buyers who have equity to invest. In the case of first-time buyers, the builders and the government are shouldering the risk through new-buy schemes. The banks’ capital base is also recovering’ they say. Furthermore they comment that ‘These developments help to explain the marked improvement in the mortgage market suddenly being signalled by the Bank of England’s Credit Conditions survey, the sharpest since this survey began in 2007. In the third quarter of this year, a significant proportion of mortgage lenders said they had loosened their lending criteria or were planning to do so, while 22% were planning to reduce the mark-up on mortgage rates. The survey suggested that little movement in unsecured lending and forecast a continued deterioration in the outlook for lending to small companies, which it seems, are still regarded as too risky. Nevertheless, these developments are encouraging.’
A lot of economic detail but for ‘property watchers’ and for those like us working in the property industry these are important pointers for how the market may perform over the next 12 to 24 months.
Not sure we can say this is the end of the credit crunch although we’d all hope that, it may just be the ‘end of the beginning’ though

The recent release of further figures is painting a mixed picture for the property industry.  The often quoted “shortage of funds” and “lack of liquidity” is often used in many industries not least by those in the property sector.

Lending to businesses in the UK fell by a further £4.8 billion in the 3 months to February 2013 according to the Bank of England. This translates as a fall of 4.4% in loans to companies and small firms from a year previously.

The Bank also said that the mortgage market was largely unchanged.  This was reinforced by figures from the council for mortgage lenders showing lending in the first quarter of 2013 to be the same as last year.  The Bank of England reported loans to construction firms and house builders was particularly weak.  Whilst our experience is that the market has improved in the last 12 months it certainly shows the weakness that led to the “second dip” into recession in the summer of 2012.

Lending to the Real Estate sector – a mainstay of our business dealings, fell by 5.3% in December 2012 from a year earlier.

The council for mortgage lenders are feeling a bit more positive though, saying “conditions in the housing and mortgage markets continue to show signs of improving” according to their chief economist.

The belief and experience for us at Harris Lamb is that the availability and pricing of lending is getting better from a borrowers perspective.  There is also the benefit, in many cases, of companies prudently holding cash reserves that they are now happier to deploy in what people believe is a more stable property market.

Undoubtedly the “Money Picture” is getting brighter.


For more information on property and opportunities in the commercial and residential sectors contact one of the agency team at Harris Lamb on 0121 455 9455 or email

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