Commercial Finance Specialists

Introducing measures to increase the cost of debt could force banks to call in thousands of loans, according to a leading property group.

Increasing the cost of debt in tomorrow's Budget could force banks to call in thousands of asset financing loans across the commercial development sector, it has been claimed.

The potential impact of repossessions and subsequent sales of commercial property could push down overall market values, according to the British Property Federation (BPF).

Chancellor George Osborne could also find himself with a serious headache, with £150 billion in commercial property debt held by the state-backed Royal Bank of Scotland and Lloyds Banking Group.

Liz Peace, chief executive of the BPF, explained that any restrictions on tax relief for commercial mortgage lending would be the "last straw for many businesses".

She added: "As well as making it more difficult to manage, restructure or refinance existing loans, increasing the cost of borrowing would reduce funding available for new projects.

"It is these new projects which will stimulate economic activity and create the jobs we need to climb out of recession."

Figures from the Investment Property Databank (IPD) released last week indicate that the pace of commercial property capital growth eased for a second consecutive month in May, falling to 0.5 per cent.

Posted by Allan Flowers