2008 CREDIT CRUNCH ? THE FACTS.

Forecast for the Year

It is demand of supply and credit, not of bricks and mortar,that drives commercial and residential investment property values. If credit is plentiful and cheap, property values rise - more people chasing property with more borrowed money creates higher prices. Simple economics.

Once commercial funding becomes more difficult to obtain and more expensive, property values fall or remain static - fewer people borrowing lower sums means less money chasing commercial and investment property. It's as simple as that.

In 2008 banks and commercial lenders will be far more stringent on who they lend money to, and they will try and charge more to compensate for the smaller loan book. It will therefore become even more critical in 2008 that credit applications are structured in the most appropriate manner to the most appropriate lenders in order to secure the most competitive terms.

In December UBS, Europe's biggest bank announced a $10bn write-off on its US sub-prime exposure, strongly suggesting that the previous round of losses announced by European banks was just beginning. Why is this a problem for UK commercial and residential investment property ? Well, banks lend a multiple of their core capital, perhaps 10 times, so UBS's capital losses to date of $14.66bn equate to around $150bn fewer loans this year. This is equivalent to about 3 weeks of UK GDP. And this is just one bank.

So what does this mean to commercial investors / owner occupiers and property developers ?

Commercial funding in 2008 will become more difficult and professional assistance will greatly increase the chances of succesful and competitive credit applications. Since lenders are going to make fewer loans this year and on wider margins to compensate, commercial borrowers will find it hard not to pay at least 7% without professional assistance. This is the hard reality of a credit crises once it reaches the high street. Banks are nothing if not adept if passing on the pain.

Business Assistance (NW) Ltd. is a commercial finance intermediary specialising in property finance, and has arranged over £22m for property clients in the past 12 months from a panel of over 30 specialist lenders.

S.A. Barber MBA December 2007

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