CFI: News Review
The bumpy road to recovery will be slow by
Rob Lankey, head of lending, Aldermore Commercial Mortgages
the most recent inflation re- port to be published by the Bank of england doesn’t ex- actly paint an optimistic pic- ture of the state of the British economy. in summary, there is con-
tinued downward pressure on growth and upward pres- sure on inflation, with higher utility bills expected to push inflation to 5% later this year. uK output has remained flat over the past two quarters and is 4% below its peak prior to the onset of the re- cession. With consumer confi-
dence at a low ebb and household spending under pressure due to rising costs and ongoing pay restraints, recovery is most likely to be fuelled by a growth in ex- ports rather than increasing domestic demand. However there is uncertainty over the speed at which net export will pick-up over the coming months.
Not quite there yet the uK housing market, which has historically helped drive a strong economy, is still suffering with mort- gage applications for house purchase down by 21% in april compared with march. the housing slowdown has hit the construction indus- try hard, with construction shrinking by 4.7% during the first quarter of this year. and to flush out all the bad news in one fell-swoop,
the extended easter, bank holiday and royal wedding holiday period also played its part in holding back the economy. the national feel good factor generated by the marriage of Kate and Wil- liam and a few weeks of un- seasonal sunshine may have lifted our spirits, but it did not lift economic output. all of which gives the
Bank of england monetary Policy committee a sizable headache when it comes to reviewing interest rates. their mandate is to keep in- flation close to or below its 2% target. the conundrum they face is whether to put rates up in order to regain control over inflation but run the risk of stalling a recovery. or should they hold rates at their current low level to help the economy get back on track and ignore rising in- flation, which is meant to be their number one priority? it seems the factors caus-
ing inflation to remain so high, such as high oil and gas prices and the price of raw commodities including wheat and other foodstuffs (many of which are import- ed) will not be directly affect- ed by higher interest rates. if excessive consumer spending had been the cause of the current inflationary spiral, i could understand the logic of increasing rates to dampen demand but that is not the problem we cur- rently face. my vote, therefore, is to
keep Bank Base rate low until we see solid signs that recovery is underway which could be next year. However the current feeling amongst many leading economic fore-
casters is that we may see a rate increase later this year, possibly in the autumn.
Commercial perspective What does this mean for the commercial property mar- ket? in general terms, a slow economy and high inflation are not good news for any businesses (other than in- solvency practitioners!) and commercial property is no exception. However, when you look at the data pro- duced by ricS it holds one or two surprises. tenant de- mand has continued to rise and commercial property sales in some areas are on the increase. the devil is in the detail and when you look more closely, you discover a commercial property market which comprises two very different elements: prime London property and every- thing else.
London in London capital values are holding up well whereas across the rest of the coun- try they are continuing to fall. Likewise, rental expec- tations in London are rising at the fastest pace since 2007 and the amount of available space has fallen, whereas in other parts of the country available space is continuing to increase. the number of new devel- opments is also down across the country with the excep- tion of London where new starts rose for the third con- secutive quarter. ricS surveyors say an unwillingness by banks to lend at competitive rates is hampering the investment side of the market but they
acknowledge that the mood amongst investors is improv- ing, if only modestly. it’s probably fair to say that
for both the economy gen- erally and the commercial property sector specifically, hopes of a recovery in 2011 are now looking optimistic but a gradual improvement will feed through into bet- ter prospects for 2012 and beyond. to blame the banks is
easy and in some cases may be justified but banks aren’t wholly to blame for the slug- gish state of the commercial property market. i can con- firm from my own experi- ence that when good quality applications are presented, lenders such as aldermore and others are willing to consider creditworthy appli- cations. Since returning to the
market in 2009 our lending volumes have been steadily increasing and the good news for the market is that other lenders, which employ experienced industry pro- fessionals, have also made a come-back. there is funding available but i do accept that it’s not always easy to find - which is why professional commercial mortgage bro- kers have such an important role to play in today’s market. there is no getting away
from the fact that it’s the big banks that have the power to move markets. intermediar- ies, landlords and property investors are all eager to see the major players take a more proactive approach and feed desperately needed funding back into the market. it will happen eventually, but it’s going to be a slow process.
mortgage introducer JUNE 2011 53
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