In fact, the Bank of England is fearful of the impact that £200bn in writedowns (based on loans given to the commercial property sector) could have on banks ability to give loans.
Already loan defaults are at an all time high due to property price falls of 44% on shops, offices and warehouses since 2007.
Yet the Bank of England also feels that the withdrawal of lenders from the property sector is further jeopardising the economy’s recovery.
In their report, they revealed that banks exposures are 6 times greater than they were in the last recession, and because of this banks may be forced to sell their properties to help cope with the growing stock of repossessed properties coming onto the market.
However such property sales could do more harm than good…
In recent months, demand for property has steadily led to property price increases of 5.4%. However a disruption to the supply/demand balance could place significant downward pressure on property prices, prompting a sudden price drop.
And should that occur, not only will banks recovery rates dramatically reduce, but they may also feel further inclined to sell more of their assets, hitting property prices even harder.
Currently the Royal Bank of Scotland and Lloyds are in deep discussions to help find a resolution to this problem, before history ends up repeating itself and we witness the same huge sell offs of the 1990s.
So far banks are avoiding repossessions where interest payments are being met (but where the LTV has been breached), and are not demanding revaluations on properties where the loan in still performing.
However despite these efforts, the Bank of England is still concerned that recent rent declines and increases in the number of empty properties may affect the income of professional landlords and may eventually cause them to not meet their loans. Because of this, they are urging banks to re-think their policies now before it is too last and we enter into another property black hole.
More than a million people aged over 50 are believed to be relying on increasing property values to help fund their retirement. Yet since the onset of the recession during autumn 2007 an estimated £27,250 is believed to have been wiped off the price of UK property values.
Even following the last 7 months which has witnessed property price increases of £15,000, this overall property loss has still severely dented pre-retirees plans to use equity release to boost their retirement.
According to popular insurance company Liverpool Victoria, more than 12% of over 50s believed so much in the capital growth of their properties that they have chosen to save less independently.
And as a consequence, many now face a reduced standard of living when they hit retirement..
Yet despite these property price falls, confidence still remains in the long term value of their properties.
Through the use of equity release - where money is taken from the value of their properties – many over 50’s plan to fund their retirement by taking money out of their properties.
However, consumer group Which? feels this could be a big mistake and should only be used as a last resort.
Expensive, inflexible, and more often than not designed to leave people with little equity to play with; property experts recommend downsizing to a smaller, cheaper property instead. Not only is downsizing easier but pre-retirees can instantly benefit from these profits.
Original Article
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Fraser Stirling, Property Mentor DelegateNo matter what the media wants you to believe, property is still the only investment route where you can benefit from an asset that will NEVER go into zero value. Even when I was university I admired properties ability to withstand the economic elements and stay strong, even when other investment forms faltered or failed. X years on, I am now the proud owner of multiple property investments - one of which earns a passive income of £4,680 and my property portfolio is still expanding. Read more
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