At the launch of the latest De Montfort Study into the UK Commercial Property Market in London, Howard Davies, chairman of the FSA, said: "The headline conclusion from this year’s survey is that commercial property lending continues to grow rapidly, at a time when economic growth now appears to be at a standstill. The market grew by 25 per cent during 2001, only slightly less rapidly than in 2000.
"Is this worrying, from the perspective of financial stability in general, or in relation to the safety and soundness of individual lenders? Within the total, there are some interesting changes in the mix of lending, which we need carefully to analyse. For example, building societies have increased their market share considerably. They are now the fastest growing lenders with 16 per cent of new loans, while their outstanding stock is only 10 per cent of the market.
"As for lending practices there are some signs that lenders are recognising the risks and reacting sensibly to them. Industrial lending is a smaller proportion of the loan book and fewer lenders are prepared to lend at margins of under 100 basis points.
"Overall, therefore, the picture revealed by this survey, and other related information, is not alarming. But we will continue to watch this situation closely and, in particular, to monitor two areas of concern. First, the performance of a number of building societies whose commercial property loans are growing as a proportion of their total loan books. Some of these societies may have less experience of the market than other lenders and of working out problem commercial loans.
"And, second, the reported rise in investment by smaller UK private property companies, high net worth individuals or consortia, attracted to the market by low interest rates. Anecdotal evidence suggests that such investors can be highly geared, and offer little collateral. Banks should carefully monitor their exposure to investors of that kind."
