Banks Could Face Huge Losses On Commercial Property Loans
The effects of the credit crunch and the general economic slowdown in the UK over the past couple of years or so has had a huge impact on Britain’s banking sector, with banks suffering massive losses due to high levels of loan arrears and defaults from customers being unable to maintain their personal and homeowner loan repayments in the face of the recent recession.
Banks have been forced to write off billions of pounds worth of loans as bad debts and several large high street banks have had to be part nationalised as the government has stepped in to bail them out with large loans from the Treasury.
Despite the fact that the economy in the UK is slowly starting to show some signs of, if not recovery, at least the beginnings of some stability and banks are tentatively starting to think about offering new loans to their customers once again, it seems quite possible that the UK banking sector could be in for another wave of massive losses, this time from bad credit loans on commercial property.
The commercial property sector in the UK has been affected even worse than the residential property market and the estate agent Savills estimates that the sector has seen a drop in property values of somewhere in the region of 40 per cent over the course of the last two years alone.
It is estimated that there are around £300 billion worth of outstanding loans secured on commercial property within the banking sector and it seems likely that the UK will be forced to follow the American market and write off a large amount of these loans as bad debts. Savills has estimated that the vast majority of loans granted on commercial property since 2004 are now in a negative equity situation.
