Almost a quarter of British commercial property borrowers in
Britain are experiencing negative equity, according to a new
study.


De Montfort University's report shows that the value of many
real estate loans is higher than the actual property value,
highlighting the impact of reckless lending prior to the global
financial crisis.

The total figure of loans experiencing negative equity is
currently £45 billion, 23 per cent of total investment, at the end
of 2012.

As property prices fall in many parts of the country, the
worst-quality loans are deteriorating further, creating problems
for banks as they try to clean up their books of property debt
accrued from years of lax lending.

Banks are now holding a large amount of bad loans that create
unwanted blots on their balance sheets. When the value of a
property falls, "loan-to-value" ratio rises above the 100 per cent
threshold, potentially triggering a default. Banks may choose to
waive this breach if they feel the property market will recover
enough to recoup their investment.

Although London property has recovered well, other areas of the
country have experienced larger falls of around 40 per cent, as
some cities adapt to public investment cuts.

"Banks have good, bad and ugly loans but the ugly is getting
uglier," said Philip Cropper, executive director at CBRE.

"It means a more protracted clean-up for the banks," he
added.

Some argue that this could create a wider gap between London and
the rest of the country, with developers holding out for the safest
and best deals in the capital.

However,
recent improvements in areas such as Manchester show that the
economy is recovering, with regional growth occurring. Outstanding
property debt fell by 7.7 per cent last year from 214.4 billion
pounds to 197.9 billion. There is still a lot to be hopeful for in
the UK commercial property sector.

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