Property Receivership in 2022: Why lenders must now prepare for the unexpected

By

Daniel Richardson - Partner CG&Co

The courage, resilience and sheer determination of the entire Ukrainian nation continues to inspire on a daily basis.

But what is becoming increasingly clear is the economic toll of the conflict will not be restricted to Eastern Europe.

And the evidence for this is becoming overwhelming.

Russia’s war in Ukraine has caused global prices for grains, cooking oils, fuel and fertiliser to soar, and the United Nations has recently warned that this will worsen food, energy and economic crises globally.

The BBC has reported that the World Bank’s president David Malpass anticipates that there could be a “human catastrophe” from the food crisis arising from Russia’s invasion of Ukraine, traditionally known as ‘Europe’s bread basket’.

The World Bank has calculated that there could be a “huge” 37% jump in food prices, which could push hundreds of millions of people into poverty.

Separately, we’re already witnessing inflation at 9% in the UK, which is the highest it has been in 40 years.

In his Spring Statement delivered in March, the Chancellor of the Exchequer said he expected inflation to average 7.4% this year.

At that point, no-one expected the war in Ukraine to last into next year, which is now anticipated by many analysts.

Indeed, earlier this month the Bank of England stated for the first time that it expects inflation to reach around 10% this year before dropping in 2023 until it’s “close to 2% in around two years”.

As anyone in business is all too well aware, two years can be an exceptionally long time…

There’s no doubt that the base rate will be increased over the coming months, but even that might not be sufficient to stop inflation escalating in the short to medium term.

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.

Against this unprecedented backdrop, defaults on loans are increasing, whether arrears on payments or due to the expiry of loan terms.

The industry pulled out all the stops to ensure that customers could benefit from payment holidays during the pandemic’s darkest days.

But 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.

When it comes to property receivership, the need for lenders to take appropriate and commensurate action at the earliest possible opportunity when default loans occur has never been greater than it is now.

It’s impossible to envisage how the next chapter of the war in Ukraine will evolve and what the full implications for global economies will be.

Nonetheless – at this point in time – it remains truly imperative for lenders to prepare for the unexpected and consistently adopt the most proactive approach to property receivership.

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