Insurance News Archive

Commercial property sector at risk from credit shocks

Britain's commercial property sector is one of the areas of the UK financial system that is most vulnerable to further fallout from the credit crisis, according to a report from the Bank of England.

The twice-yearly review by the bank said that the credit crunch, triggered by the sub-prime mortgage lending in the US, could still have repercussions even though some financial institutions seem to be recovering in confidence.

In the report, the Bank of England points to the commercial property sector, saying prices are already falling and that it is "particularly prone to further shocks and to rises in the cost of finance".

The cost of finance could rise as the debt market tightens after the credit crisis was attributed to poor lending, in particular the practice of originate-and-distribute that saw financial firms get debt and parcel it for sale.

However, the bank also reports that some companies are beginning to loosen the reins already and this has its risks as well.

While the practice could bring confidence back, it does so at the risk of creating instability on the markets "potentially on an even larger scale".

26 Oct 2007