LONDON (BLOOMBERG) – Banks are putting the brakes on UK commercial real estate lending as the pandemic batters the economy and stokes fears about looming defaults.

New loans declined in the first half by 34 per cent from a year earlier to £15.5 billion (S$27.30 billion), according to a report from The Business School in the City of London. More than a fifth of lenders surveyed said they made no new commercial property loans in the period.

The coronavirus has plunged the UK into a painful recession. Government lockdown measures to slow the outbreak have forced many businesses – especially restaurants, bars and retailers – to close, crippling their ability to pay rent and threatening property prices. That’s raising the prospect of more loan defaults as the value of commercial properties decrease, leaving borrowers in violation of the terms of their loans.

“The short-term effects of the coronavirus pandemic have only just become visible, but the long-term effects will impact lending and banking into next year and beyond,” Nicole Lux, senior research fellow at The Business School and author of the report, said in a statement.

So far, many lenders have extended loans or provided short-term refinancing to struggling borrowers, according to the report. That could change in the fourth quarter, when enforcement actions could begin for some property types such as retail, shopping centers and hotels.

The amount lenders were prepared to offer against the best retail outlets averaged just over half of the value of the properties, the lowest level ever recorded by the research. Only 27 of the 76 lenders surveyed would offer a price for such loans.

The survey sample included banks, building societies, insurers and other lenders.