Banks forced to unwind property investment loan swaps could end up incurring extra charges in the region of £15 billion, it is claimed.
Banks operating in the UK commercial property market could find themselves incurring costs of up to £15 billion as they attempt to clean up their loan books, it has been claimed.
William Newsom, the UK head of valuation at real estate agent Savills, warned property advisors at the Financing Property presentation that banks looking to unwind swaps for dangerous property investments could face extra charges of £10 billion.
However, he privately admitted to Reuters that this was a conservative estimate and the actual figure could be 50 per cent higher.
A swap involves agreeing a fixed interest rate for a period of time, with the issuer being liable for any difference in interest between what they pay and the market level, the news provider explained.
Mr Newsom came upon his figures by using data from the recent De Montfort University study on the state of
property investment lending.
The academic study found that 57 per cent of the £250 billion UK loan book had an interest rate hedge in place.
Posted by Hadji Singh.
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