Among the many financial market considerations being speculated upon in the wake of Brexit is the appetite for bank lending to commercial real estate. A fall in capital values and
consequent rise in LTVs on existing lending could push up capital requirements, making
historic lending less profitable and diminishing the availability of funds for future lending.
However, in analysing some of the more adverse anticipated market scenarios, we find that
any capital shortfall is likely to be minimal – a minute fraction of that facing the industry in the 2008/09 crisis. So, Bank lending to commercial real estate will not be significantly curtailed by capital constraints brought on by post-vote market jitters. Furthermore, recent action by the Bank of England to reduce the counter-cyclical capital requirement will in effect act to dampen the impact of rising RWAs on balance sheets. Of course, other factors may influence lending behaviour on the part of the banks, but restructuring in the UK lending market means that borrowers are far less exposed to one type of lender than was the case a decade ago.