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Lenders remain optimistic about outlook for European market

Lenders remain optimistic about the outlook for property lending according to new research out from Cushman & Wakefield. In its latest autumn 2017 Emea Lending Trends report, a net 62 pct of lenders surveyed by Cushman & Wakefield expect their loan books to grow over the next six months. The growth is likely to come from loan originations with a net 34 pct expecting these to increase over the next six months – contrasting with 24 pct who reported growth in the previous six-month period. Growth in refinancing is also expected to grow, albeit at a slower pace compared with the previous six months.

The focus of activity is much broader across the continent with the geographic focus more evenly spread. The UK remains the primary target, but now attracts a 17 pctmarket share, only marginally ahead of France, Germany and Benelux markets on 15 pct share each. The Nordics (11 pct), Spain (11 pct) and Italy (9 pct) remain popular too.

Although lenders remain focused on standing investments in both Tier 1 and Tier 2 & 3 cities, there is some evidence of a marginal shift towards development activity, primarily pre-let development, as some investors, struggling to find suitable core stock, are looking at build-to-core strategies.

Average All Property loan-to-values (LTVs) have not changed significantly over the last six months and typically lie between 60-65 pct in the main cities. Across all markets the European average has risen to 61 pct from 60 pct. Notable rises have been reported in London (60 to 63 pct) and Paris (60 pct to 65 pct). LTVs were broadly stable in other cities.

Average margins have risen 18bps to 242bps since Cushman & Wakefield’s Spring survey although the movement varies by market. Margins fell in Frankfurt (down 31bps to 195bps) where there has been strong competition among lenders. London saw a 29bps rise to 249bps, with Paris up 46bps to 242bps, and Milan 67bps higher at 293bps.

With interest rates at historic lows and with no unwinding of quantitative easing in the Eurozone, for now at least, sentiment remains positive. Lenders are expecting a turn in activity with expectations that interest rates may start to rise. Most expect a rise in the UK first, with 85 pct of respondents expecting UK interest rates to rise either this year or next. Any rise on the continent is expected to lag that of the UK, where only 56 pct expect a rise by the end of 2018.

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