* Regulation needs to be fit for entire cycle - report
* Proposes changes to loan valuation model
* Seeks creation of property loan database
LONDON, Oct 22 (Reuters) - Lenders to Britain's propertysector must change the way they value real estate to avoid arepeat of the meltdown that helped to cause the financialcrisis, a report by banking and property experts said onTuesday.
The report by the Real Estate Finance Group (REFG),comprising senior bank and property figures from companiesincluding Wells Fargo, CBRE Group and Grosvenor, says that reform is needed to curb overenthusiasticlending at the top of the cycle and ensure that banks havesufficient cash reserves to support post-crash recovery.
The REFG was set up to propose a market structure andregulatory regime to guard against the practices that left manybanks with portfolios of property loans that exceed the value ofthe underlying real estate.
After years of excessive lending in the run up to 2008,banks such as Royal Bank of Scotland and Lloyds have been hit by tough capital requirements that have forced adrastic reduction in their lending to the sector.
"We need 'right touch' regulation fit for all stages of thecycle, rather than 'light touch' as the market rises followed by'heavy handed' after a crash," said Grosvenor Finance DirectorNick Scarles, who chairs the group.
The REFG's seven proposed reforms include a requirement forloans to be linked to a property's long-term loan-to-value ratiorather than the ratio at the time of the loan. This wouldcompare the amount of the loan with the average value of theproperty through the market cycle, ensuring that capital buffersare built in automatically.
It also advocated the creation of a database of all UKcommercial property loans, the risk levels of which could beanalysed periodically by regulators and academics.
The report also proposed that key staff in lending teamsshould be required to gain accredited qualifications.
The recommendations will be sent out for comment and a finalreport will be published in early 2014.