Edward Gee and Daniel Richardson, CG&Co
It has never been more important for lenders to be mindful of property receivership than it is now.
The reason for this is simple…
The prospect of higher interest rates and rising inflation are all contributing to the potential increase in default rates among borrowers.
The latest Bank of England credit conditions survey showed that lenders predicted that mortgages, unsecured lending and business loans will see a jump in defaults over the last three months.
Lenders also told the central bank that they plan to rein in mortgage lending by the greatest amount since the start of the pandemic.
Myriad other statistics are emerging on a daily basis signalling what’s in store.
For example, the latest figures from the Office for National Statistics (ONS) reveal that inflation rose to 9% in the 12 months to April 2022 – up from 7% in March – making further increases to the base rate now unavoidable.
People are simply going to have less money to spend and once the energy price cap rises again in October the inflationary spiral could accelerate further.
This situation is unravelling at a time when demand for unsecured lending has never been greater.
Consequently, it has never been more essential for lenders to ensure that they’re able to use their own funds to relend at rates that are most advantageous to them at the earliest opportunity.
It’s equally imperative that lenders place the greatest emphasis on affordability.
It’s clear that what we’re facing now is a very broad-based inflation with higher costs being passed down by all sorts of businesses.
And this period of high prices isn’t coming to an end any time soon.
Whilst the appetite to lend remains high within the specialist finance market, there also remains a distinct possibility that loan to values could struggle to meet outstanding debt figures.
That has the potential to mean that borrowers are unable to raise the funds to cover shortfalls which – in turn – prevents refinance exits from progressing.
Lenders must ensure that they consistently identify underperforming or default loans, especially those where the term has expired, at the earliest opportunity.
These default loans subsequently need to be acted upon immediately by working with the most proactive property receivers.
In CG&Co’s experience, engagement and negotiation with borrowers are paramount to mitigate this situation – but prompt and decisive action must be taken.
Many borrowers in default of their loan terms only realise the gravity of the situation they face when they’re contacted by a property receiver.
Essentially, this is the wake-up call that’s required to get the situation resolved in the most successful way possible for all parties.
To conclude, this unprecedented economic situation is manifesting itself in the wake of one of the worst pandemics on record.
The industry pulled out all the stops to ensure that customers could benefit from payment holidays during the pandemic’s darkest days.
If borrowers start defaulting now because of increased interest rates and the cost-of-living crisis, then lenders will understandably not be able to adopt the same approach.
None of us know for definite how the next chapter will unfold.
But, at this point in history, it’s never been more imperative for lenders to prepare for the unexpected and consistently adopt the most proactive approach to property receivership.
Edward Gee and Daniel Richardson are Property Receivers and Insolvency Practitioners at CG&Co.