27th May 2021

UK real estate finance market shows resilience in a diverging market

  • Native Finance's landmark Real Estate Recovery Report reveals loan volumes across the UK have risen by 24% in Q4 2020. Loan volumes fell 42% in May 2020 -- the lowest since 2015

  • Edinburgh (-66%), Glasgow (-47%) and Cardiff (-44%) experienced the sharpest drops in loan volumes in Q2 2020; Leeds and Nottingham performed better

  • Buy-to-let lenders experienced the largest gross decline in loan volumes between February and May 2020 -- a 51% decline

  • Of the high-volume lenders, only challenger banks ended 2020 at pre-pandemic levels

In its landmark Real Estate Recovery Report 2021, Native Finance, the commercial real estate finance PropTech platform, has explored lending volumes to the real estate sector across the UK and revealed remarkable resilience, with loan volumes rising steadily after falling, by 42%, to their lowest since 2015 in May 2020.

This gap was almost closed by the end of the year with December loan volumes only 6% behind 2019 levels. This flurry of activity could indicate a greater appetite than normal to close deals before the end of last year.

A varying regional landscape

The UK regions all suffered as a result of the pandemic, however data from UK's major cities uncovers a far more fragmented picture: whilst Edinburgh (-66%) and Glasgow (-47%) experienced the sharpest drops, Leeds (-27%) and Nottingham (-22%) fared more favourably.

In Q4 2020, Yorkshire was the quickest region to recover, with Q4 2020 loan volumes only 7.6% behind 2019 levels.

By city, the most robust recovery was seen in Edinburgh and Glasgow, despite being two of the most significantly affected cities in Q2 2020. In Q4 2020 they experienced positive growth of 39% and 6% respectively and Newcastle managed to exceed 2019 volumes by 1%.

The new lender landscape

With the volume of buy-to-let loans dropping by 51% between Feb and May 2020, buy-to-let lenders (BTL) saw the most significant decrease, having experienced a period of sustained growth since 2019. Meanwhile, both challenger and clearing banks have been losing volume since mid and early 2019 respectively. Challenger banks have rebounded much faster in relative terms. They ended 2020 at the same volume they began, while BTL lenders had more volume to makeup to return to pre-COVID-19 levels.

Prasanna Kannan, co-founder at Native Finance, commented: "The data in this report highlights the fact that the real estate finance industry is heading towards a new normal. Despite the market grinding to an unexpected halt in May 2020, a cautiously optimistic market has emerged with appetite for growth among lenders, although we are seeing signs of increased scrutiny on deals, with reduced leverage and increasing margins.

"Disruption in real estate lending in the past decade has created a more competitive environment; both market players and investment trends are evolving faster than before, impacting everything from core asset focus to lending criteria and regional investment trends.

"Knowledgeable brokers still have the opportunity to make or break successful deals in this new playing field. They will need to take a new approach -- constantly tracking and engaging with a wider range of lenders to leverage more in-depth information and tools -- to provide long-term client value."

Native Finance maps a range of data points to track the real estate debt market. With connections to over 360 lenders, it tracks over 1.5 million loans to monitor lending health in real time.

The Real Estate Recovery Report 2021 analysed the impact of COVID-19 on the real estate finance market, and the lessons brokers can draw to maximise success in 2021 and beyond.

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