Vision for real estate finance

A Vision for Real Estate Finance in the UK

Recommendations for reducing the risk of damage to the financial system from the next commercial real estate market crash.

A message from Nick Scarles, Chairman of the Real Estate Finance Group (REFG):

"A Vision for Real Estate Finance in the UK’, is a report which draws on the breadth of the group’s property industry expertise to come up with a solution which both protects financial stability and maximises the commercial real estate sector’s contribution to economic growth. The report is by the REFG, a cross-industry real estate group comprising experienced professionals from across the market spectrum, acting in their personal capacity, with the objective of delivering unconstrained their best recommendations. The report benefits from the industry discussion initiated by publication of the group’s draft recommendations in October 2013 (see bottom of page)."

"We believe our recommendations offer a realistic prospect of protecting financial stability and maximising economic growth and hope that those with the power to implement them will now take these proposals forward."

 A Vision for Real Estate Finance in the UK - final recommendations

 

Long-Term Value Methodologies and Real Estate Lending

The report, Long-term Value Methodologies and Real Estate Lending, published on 30 June 2017, outlines work undertaken in pursuance of Recommendation 4 (Use of long-term value measures for risk management) in the 2014 paper, A Vision for Real Estate Finance in the UK.

The Long-term Value Working Group (a sub-group of the Property Industry Alliance Debt Group) assessed the ability of three alternative methodologies (Adjusted Market Value, Investment Value and Mortgage Lending Value) to provide advance signals on when the commercial real estate (CRE) market may be overvalued and face a high risk of a major fall in values. The main conclusion of the research is that estimates of long-term valuations can provide useful advance signals of this.

 Long-Term Value Methodologies & Real Estate Lending


Further work is planned to complete the analysis of the different approaches and look at how they might best be used to inform decision-making by lending institutions and regulators.