U.K. banks plan to renegotiate terms with their borrowers rather than calling in loans that are in default.

Stephen Eighteen, head of real estate at Royal Bank of Scotland (RBS), and Nick Robinson, head of real estate at Lloyds Banking Group (LBG), speaking at an Estates Gazette conference, said that they will spend many years fixing their U.K. property loans.

In their view, it is neither in the bank’s nor the customer’s interest to not renegotiate existing agreements and find solutions for refinancing challenges in the current market.

Barclays Capital  analysts said as many as 95% of borrowers still control their properties, despite material declines in values and potential covenant breaches.

Hans Vrensen, director of European MBS research at Barclays, said it may not be possible for RBS and LBG to execute their strategy of careful workouts on their entire combined £100 billion ($159 billion) commercial mortgage loan book.

“In principle, it is certainly an ambitious goal, but, in our view, borrowers are likely to try to take advantage of this stated strategy by forcing more favorable terms than are commercially sensible in the current market,” he explained. “Of course, other non-government owned banks might also decide to be more pro-active on enforcement of defaulting loans.

He added that these banks might benefit from beating the state-owned banks to market and perhaps sell any loan pools or enforced properties into the current rally. In short, U.K. banks might be unable to avoid enforcements on their balance sheet with commercial mortgages, Vrensen said.

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