Knocks and Knock-Ons

Minutes of a meeting of the BoE’s Financial Policy Committee, highlight the risks still facing the UK commercial real estate sector, stating that some segments of the market, “continued to appear stretched”. It is the potential knock-on of any pricing contraction which is of concern to the BoE. Whilst noting that UK banks’ CRE lending had halved since 2008, the minutes state that 75% of bank lending to SMEs in 2015 used CRE as collateral.  Therefore if pricing drops, the ability of these businesses to secure finance would also fall, tightening credit conditions in the wider economy.  Meanwhile, the FPC opted to retain a measure limiting the volume of residential mortgages extended over 4.5x income, stating that an increase to 5x income would only increase the value of lending by <1%.