A large percentage of US banks say that lending standards for commercial real estate loansare the tightest they have been since 2005, highlighting a continued lack of appetite for real estate investment.
Some 30 per cent of US banks said their standard for commercial real estate loans are thetightest they have been in six years, according to a special question in the Federal
Reserve’s latest survey of senior bank loan officers, while another 37 per cent said thatstandards are only slightly easier than their tightest in that period.
The numbers are evidence that, despite some improvement since the recession ended in2009, it is still very hard to get a loan for a US commercial property.
“For most loan categories, the current level of lending standards was tighter than the middle of its recent historical range,” said the report. Some 59 per cent of loan officers said that conditions were tighter than average for prime mortgages, with 12 per cent saying that they were the toughest they had been since 2005.
But, in contrast to the perception that the refusal of banks to lend is holding back the recovery, loan officers said that standards for loans to investment-grade firms were in line
with the average since 2005, while only 23 per cent said that they were tighter than average for small firms.
The survey showed a slow easing in lending standards but credit conditions remained painfully tight for small businesses and home buyers.
No bank said that it had tightened its lending standards for commercial loans. Twenty-two per cent said that they had eased standards for lending to big firms “somewhat” but only 8 per cent said that they had done the same for firms with sales of less than $50m.
In a sign of the squeeze on bank profitability caused by low short-term interest rates and a flat yield curve, 60 per cent of banks said that they had cut the interest spread they charge on loans to large companies. Of banks that had eased their lending conditions, 60 per cent said that more aggressive competition was a “very important” reason.
Mortgage lending remains trapped in the doldrums as banks keep credit standards high and consumers show little interest in borrowing.
Only four out of 53 banks said they had eased lending standards for prime mortgages, while three said that they had tightened them.
The picture was similar on the demand side, with 12 banks reporting stronger demand for residential mortgages, compared with 13 that said it was weaker. Disappointingly, of the 24 banks that offered non-traditional mortgages, 21 per cent said that demand had weakened.
The numbers suggest that the continuing decline in house prices is putting people off buying, and even though credit conditions are still tight, they are not the main constraint on the real estate market.
Robyn Harding, The Financial Times