The Cost Of Debt In London And The UK Is Starting To Settle Down

Interest rate margins and loan-to-value ratios on UK real estate loans started to stabilise in the final quarter of last year, according to new research.

CBRE’s European Debt Finance Review found that average margins and LTVs in the UK remained flat in Q4. In the case of retail loans, margins even fell slightly, Real Estate Capital reported.

The picture broadly mirrored that of Europe as a whole, with lenders no longer hiking the price of debt due to uncertainty created by falling values. 

The all-in cost of debt still rose in the UK in Q4 because the Bank of England raised base rate to tame inflation. Data from the Office for National Statistics showed wages rising at the fastest pace since before 2001, indicating the BOE is likely to raise rates by a further 50 basis points to 4% when it meets next month, Bloomberg reported. 

Yet lenders are no longer raising rates and reducing the LTV at which they will lend, CBRE found. 

Average interest rate margins on prime city-centre London office senior loans remained flat at 1.65% in Q4, CBRE found, while LTVs stayed stable at 55%. The numbers were exactly the same for prime UK logistics senior loans. 

The margin for UK multifamily loans was also 1.65%, but the LTV was slightly lower, remaining static at 50%. 

In the retail world, LTVs remained flat at 50%, though margins fell from 3% to 2.75%. 

“Lenders are likely to remain selective in what they finance, and investors may need to inject additional equity or subordinated debt to refinance office assets, given movements in values and loan terms,” CBRE said.