Property Receivership in 2023: Lenders must act without delay on default loans


Daniel Richardson - Partner CG&Co

Few of us were surprised when the Bank of England’s monetary policy committee (MPC) hiked the base rate to 4% at the start of February.

One of the Bank’s policymakers, Catherine Mann, subsequently commented that further interest rate rises could be on the cards in the war against rising inflation as Covid, the energy shock and Brexit increasingly hit our economy.

Few will also have been surprised when building society Nationwide subsequently revealed that property prices fell for the fifth month in a row in January.

The average house price last month was £258,297, down by 0.6 per cent in December.

Nationwide attributes this to a slowdown in the market caused by a combination of runaway inflation, the wider cost of living squeeze and rising mortgage costs.

It warned that the market is unlikely to “regain much momentum in the near term”.

At this point, lenders must be more mindful than ever about the implications of what’s unfolding on loan to value ratios due to the mounting risk that the house price downturn could be worse than previously predicted.

My reasons for stating this are simple…

For a start, many homeowners have much more debt in proportion to their earnings than has historically been the case.

Despite the recent falls, property prices had previously been climbing much faster than earnings for many years and this means that many borrowers are more vulnerable to any kind of ‘income shock’.

Furthermore, the impact of higher interest rates will be delayed in the UK and will be felt increasingly as borrowers come to the end of their fixed rate deals and seek to remortgage.

These higher mortgage rates will hit at the same time as borrowers grapple with a record jump in energy prices and the biggest drop in real earnings since records began.

In short, it now looks increasingly likely that defaults on loans will continue mounting for the foreseeable.

And then there’s the impact of everything that’s unravelling on the buy-to-let market.

Recent increases in borrowing costs combined with the increased cost of living raise concerns that landlords will not be able to find tenants who can afford rents high enough to cover their mortgage payments.

Many thousands of buy-to-let investors are at risk of a default if they start to lose money.

In January, the Bank of England’s Prudential Regulation Authority told lenders to exercise “more scrutiny” on loans for buy to let properties.

In a letter to lender chief executives, the Bank of England’s executive director, David Bailey, said: “The operating environment for firms remains challenging.

“The impact of increasing interest rates, inflation and high cost of living, geo-political uncertainty, and supply chain disruptions is expected to pose challenges to firms’ credit portfolios.”

To conclude, it’s now increasingly probable that the UK could be about to experience a prolonged downturn.

The unprecedented circumstances that have led to this point mean that there isn’t any guarantee that there will subsequently be an immediate economic recovery in the short term.

Consequently, it’s essential for lenders to identify and subsequently act upon default loans at the earliest opportunity.

And it’s equally essential that they consistently work with the most knowledgeable and proactive property receivers to ensure the best possible outcome.