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Commercial Mortgages - UK - July 2016

Published By :

Mintel

Published Date : Jul 2016

Category :

Banking

No. of Pages : N/A

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.

Table of Content

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

List of Table

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