INTM518030 - Thin capitalisation: practical guidance: lending against asset values: lending against tangible assets - land and buildings

The guidance in this section applies where debt is secured against an investment property. It therefore does not apply in the following situations:

• debt which are secured against property that is used in a trade by an owner occupier. Different considerations apply in these circumstances because of the risks inherent in the trading business.
• debt secured on residential property, in particular the buy-to-let market, which has shown large fluctuations in recent years.

In recent years there has been a move towards an op co (operating company)/ prop co (property owning company) business model as trading companies have sought to realise the value of their property assets, so the proceeds may be reinvested in their businesses. This has led to a proliferation of sale and leaseback schemes involving many of the UK’s largest trading companies.

Data Sources for Property Sector Debt

When considering what third parties may lend on the security of a UK commercial property, useful pricing information can be obtained by reference to commercial-mortgage-backed assets and securities from appropriate commercial databases, i.e., databases which are comprehensive and based on actual capital markets transactions.

Factors that a lender is likely to take into account in addition to those which are relevant in any debt issuance (i.e. economic backdrop, currency denomination, credit risk, amount of debt and maturity of debt) include the following:

• the type of borrower
• the type of tenant
• the terms of any lease
• the type of property and its condition
• the credibility of the business plan