BANK lending to the property sector is still limited, says a report.

The latest Lenders’ Expectations report by property agency Jones Lang LaSalle, showed that more respondents this year said they were willing to lend between £50m and £100m – but that fewer than 40% thought they would be lending amounts above £100m by the end of 2011. That compares with about 50% thinking they would do so in last year’s survey.

Peter Hague, head of Jones Lang LaSalle’s valuation advisory team in West Yorkshire, said: “The rollercoaster of financial crisis and sovereign debt continues and it seems certain that the European banking crisis is going to have profound and long-lasting implications for the commercial property sector.

“Capital value growth has slowed again, with total returns remaining well below their peak levels. Bank of England lending figures released in February show lending to real estate over the fourth quarter of 2010 fell by £16bn to £221bn – the largest drop since the series began in 1987.

“The number of active banks in the property market has also fallen and this will have an impact on the ability to bridge the debt funding gap and consequently put downward pressure on values of secondary assets.”

In the UK, during 2010, domestic players accounted for almost 50% of the market. However, the nature and source of capital is evolving and with investors looking to property as a hedge against inflation. Jones Lang LaSalle said it expected this trend to continue.

The survey said the market was likely to become increasingly reliant on new types of funding – pension funds, insurance companies, overseas banks and even equity-rich investors – to provide debt. These new entrants may ultimately act as props to the liquidity issues.

Mathew Atkinson, associate director in Jones Lang LaSalle’s national investment team in Leeds, said: “The lending markets are quick to change and fluctuate and it has become clear throughout our interviews that credit conditions are shifting.

“A year ago, we were predicting greater liquidity than we are now experiencing and the outlook is similarly challenged.

“There is without a doubt a polarising of debt provision – borrowers with strong existing relationships are well-placed to access the lending markets, whilst although not impossible for new entrants, the challenges are still there.”