The dire warning is contained in the Bank of England's latest Financial Stability Report, which was published last week.  In the report, the Bank revealed its concerns about potential writedowns on £200bn of loans made to commercial property by major UK banks. It warned of an increasing number of loan defaults given the 44pc fall in the value of shops, offices and warehouses since 2007.  However, the Bank also described how the approach of the lenders to withdrawing from the property sector could jeopardise the economy's recovery. Their exposures are almost six times greater than in the 1990s recession.  Lenders may be forced into selling a wave of properties as the stock of repossessed assets grows, according to the Bank. This could disrupt the supply-and-demand balance and place "significant downward pressure" on recovering property values.  "That would reduce banks' recovery rates and could potentially prompt other banks to sell their assets, leading to further falls in property values," the Bank says in the report.  "This would exacerbate problems for commercial property companies and firms in other sectors that have used property as collateral. If this risk was to materialise, it could leave banks less able to supply credit to the wider economy."  The concern is acknowledged by property bosses, who blame a mass sell-off by the banks of distressed properties for the severity and length of the property crash in the early 1990s.  Lengthy talks have been held between property companies and banks, notably Royal Bank of Scotland and Lloyds, about joint ventures or the sales of properties where the loan has defaulted.  But so far the banks have preferred to keep hold of most of their distressed assets while analysing their worth and planning how to increase their value.  Lenders have avoided repossessions on many facilities where the loan-to-value covenant has been breached because interest payments are still being met. Also, in some instances, lenders have not even demanded the revaluation of properties because the loan is still performing.  However, according to the Bank of England, this policy may have to be reconsidered as declines in rents and increases in the number of empty properties threatens the income of landlords, meaning loans cannot be serviced.  Also, from 2009 to 2013, around £160bn of loans need refinancing, but existing constraints on banks' balance sheets mean they will be reluctant to meet the requirements, potentially sending some companies to the wall.The banks have already taken impairment charges of £10bn in the 18 months to June.
Britain is at risk of a mass sell-off of distressed properties that would send    values into a double dip and impair the lending ability of banks.