Simulating the cyclically adjusted returns to UK property lending

Richard Barkham and Malcolm Frodsham

Journal of Property Investment & Finance, 2015, vol. 33, issue 1, 66-80

Abstract: Purpose - – The purpose of this paper is to provide an indication of the returns to commercial property lending over the last 30 years in the UK. Design/methodology/approach - – There is no long-term index of the returns to commercial property lending in the UK. This paper provides a partial solution by simulating the performance of bullet loans of various vintages, based on the value movements of the IPD index. Findings - – On average over the long-term debt returns are higher than equity returns. However, in certain periods, the losses incurred by real estate lenders are very large. Research limitations/implications - – No account taken of risk mitigation strategies used by lenders such as cross-collateralisation. Practical implications - – Provides an alternative approach to that recommended by the recent IPF “Vision For Real Estate Finance” Document based on the use of ICR. Makes the case for a loan equivalent of the IPD index. Social implications - – Reduced chance of resource misallocation and recession due to excess real estate lending. Originality/value - – Very limited information on private real estate debt returns.

Keywords: Simulation; Commercial mortgages; Commercial real estate; Default risk; Real estate debt returns; UK banks (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jpifpp:v:33:y:2015:i:1:p:66-80

DOI: 10.1108/JPIF-06-2014-0045

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