Jingle hell

18 March 2008 By George Hay Follow @gfhay

To strike deals and halt the slide in UK property prices, investors need banks to lend to them. But debt is increasingly elusive, due to a double squeeze from worldwide liquidity worries and highly leveraged borrowers. This unholy mix could keep real estate prices heading south.

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The UK's commercial property correction could leave banks and holders of commercial mortgagebacked securities facing losses of up to £7bn, according to Capital Economics. A worst case scenario whereby capital values fall by 40% and the UK slips into recession could create total losses of £18bn. However, that is still only 9% of tier one capital held by the UK's nine biggest banks, and the consultancy expects prices to only fall by 2530%.

Capital Economics estimates that around 45% of UK lenders were prepared to offer loantovalue levels over 80% in 18 months to mid2007, while 20% offered LTVs of 85% or more.

Investment Property Databank figures for February showed UK allproperty prices down 1.5% from the previous month. With rental growth, that amounted to a total return of minus 1%.

Bank borrowing in debt capital markets has declined by more than $200bn globally this year or 40% after the credit crunch deterred investors from lending them money, according to data provider mtni.

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