By James Benford and Oliver Burrows of the Bank’s Financial Stability Directorate
Commercial property played a key role in the recent financial crisis in the United Kingdom. A rapid build-up of debt tied to commercial property investments pre-crisis supported a boom in prices. The consequent bust led to a sharp rise in non-performing loans. This episode has many precedents in the United Kingdom and parallels across countries. The structure of the commercial property market, and in particular the role of leveraged investors with significant maturity mismatches on their balance sheets, is important in understanding the market’s dynamics and the risks it can pose. The new Financial Policy Committee will be alert to these risks and deploy tools to counteract them where necessary to protect financial stability.