8th February 2019
German lenders pull back amid concerns about Brexit
German lenders have put the brakes on their UK lending amid uncertainty about the treatment of UK loans in the Pfandbrief after Brexit.
The Pfandbrief covered bond market offers German banks a very cheap way of refinancing, enabling them to provide some of the lowest-priced debt in the commercial property market.
Experts said concern was mounting over the impact of Brexit on the eligibility of UK loans for the Pfandbrief.
“We have seen a repricing for UK loans by some German lenders that are affected by the uncertainties around how UK loans will be treated for Pfandbrief purposes when the UK leaves the EU,” said Starwood Real Estate Finance in a trading update at the end of last month.
Adam Buchler, co-founder of debt adviser BBS Capital, added: “We are seeing German lenders being considerably more selective in what they will look at compared with last year. Margins have widened on the limited deals they will consider by 25bps to 30bps in 2019 versus 2018.”
Under current rules, loans have to be from the EU, the European Economic Area or other specified countries including Switzerland to be eligible for the Pfandbrief.
Legislation is being drawn up to ensure the continued eligibility of UK loans after Brexit.
A spokeswoman for the Association of German Pfandbrief Banks said new rules to permit existing UK loans in the Pfandbrief would come into force imminently but legislation for new loans may not come through until the summer.
“The regulation for new loans has been brought into parliament, but this act may come only in June, which could bring several weeks without new Pfandbrief business,” she said.
German banks provided £5.7bn of commercial property loans in 2017, making them some of the biggest sources of debt in the market, according to the Cass UK Commercial Real Estate Lending Report. They typically focus on providing senior loans secured against prime commercial property.
Buchler said the pullback from German banks would have a knock-on effect on pricing from competing lenders because of reduced competition.