Last year saw the first fall in outstanding property debt for more than a decade, according to a new report.

The UK Commercial Property Lending Market Survey, penned by Bill Maxted of De Montfort University, said that from a base of £55 billion in 1999, UK outstanding lending had grown by 18 per cent every year until 2007.

Slower growth had continued in the early part of the recession but in 2010 there was a 9.4 per cent reduction.

The results of the survey showed that 67 per cent of respondent lenders had decreased the value of their outstanding debt while only 31 per cent had registered an increase, driven mainly by foreign banks.

“This reduction came from repayments that were occurring naturally but also from forced repayments,” he told members of the Investment Property Forum at a Pinsent Masons event chaired by David Smith of Strata Real Estate.

In many cases, borrowers were encouraged to refinance with other organisations where possible or dispose of assets to reduce their borrowings.

He said the total commercial property lending in the UK probably stood around £290 billion in total and 2010 had seen a gradual erosion from a figure around £305 billion in 2009.

He noted that 82 per cent of lending in 2010 came from just 12 organisations with German banks taking a far stronger position than in previous years.

“In 2009, 34 institutions indicated they intended to increase their lending, but in the event only 22 did. Credit committees were often approving only 25 per cent of viable applications due to capital rationing and taking a very selective stance.”

The research revealed that of the total loan book notified some 38 per cent was designated prime and 62 per cent secondary level property.

It was estimated that some 12 per cent of loans, around £24 billion, were in breach of financial covenants and the most common fault was the loan to value covenant which accounted for 44 per cent of the total.

In addition, the £45 billion of loans in default reduced from the £57 billion figure at the end of 2009. This was mainly due to UK property loans from the Irish banks being transferred to NAMA, the Irish government’s vehicle for handling problem debt.

After falling from average peak levels of 75-80 per cent in 2006, loan to value ratios were more stable and tended to be in the range of 60-65 per cent in 2010.

Mr Maxted concluded his review by saying that there was definitely light at the end of the tunnel.

“We are four years into a recession and financial organisations are saying it could take another five years to sort out their loan books – the light is at the end of the tunnel, but we can’t say yet how long that tunnel is.”

William Maunder Taylor, director at Kingfisher Property Finance in London, explained how banks are tackling their legacy loan books.

He said that the Lloyds Bank Group had 450 staff in what he described as its “intensive care” unit for its property loan book. Of £56 billion in loans, he believed that as much as £17.6 billion could be regarded as in intensive care.

“So far they have generated £4 billion in cash but it should be noted that 450 employees is as many as some FTSE 100 companies have.

He said of RBS’ £38 billion exposure, around £14 billion was being managed by its Restructuring Group.

“This means that 43 per cent of LBG and RBS property loans are in intensive care,” he pointed out.

He said that those still lending were cherry picking experienced borrowers with good tenants and for these clients they “are more prepared to go up the risk curve”.

But he pointed out that two thirds of loans were coming from just six lenders and there was a greater requirement for amortisation.

He believed that 65 per cent LTV should be regarded as the top end and that lenders’ credit committees felt there were still further falls to come.

“Basel III which will be phased in between 2013 and 2019 is affecting banks’ attitudes already, and more demanding capital and liquidity regulations will restrict lending capacity for property,” he said.

Mr Maxted predicted three trends in the coming years – commercial property lending becoming more expensive, shorter terms being favoured and a keenness to securitise in order to free up balance sheets.