Property Receivership: What lies ahead for lenders in 2023?

By

Daniel Richardson - Partner CG&Co

Few will have been surprised when the Bank of England raised interest rates to 3.5% in December.

Not only was it the ninth rise this year, but it was also the highest level witnessed in 14 years.

In short, 2022 has been a tough year for lenders.

The UK economy is doing badly and this has knocked borrowers’ confidence.

As we draw to the end of the year, it’s the perfect time to reflect on what’s unravelled over the past 12 months with a view to understanding what might lie in store for the new year.

On an unnervingly regular basis in 2022, there have been reports of “runaway inflation,” “imminent recession,” “mortgages up” and “incomes down.”

Most recently – at the start of December – it was reported that UK house prices saw their biggest monthly fall for more than two years in November as rising interest rates put off buyers.

According to Nationwide, British house prices tumbled 1.4% in November compared with October – the biggest monthly drop since June 2020.

Annual house price growth also saw a “sharp slowdown” falling to 4.4% from 7.2% in October and there’s every indication that the housing market will remain subdued in the coming months.

The slowdown has been partially attributed to the fallout from the September economic agenda of former prime minister Liz Truss – which triggered a collapse in British financial assets, amplified by the structure of the pension industry.

So, what’s likely to be the upshot of everything that’s unravelling for lenders in 2023?

For obvious reasons, lenders need to be more acutely aware than ever about the implications on loan to value ratios.

It seems fair to conclude that a significant decline in house prices is in the pipeline as a result of higher mortgage rates and the biggest fall in real disposable incomes on record.

Nationwide has previously forecast that the worst-case scenario is that there will be a 30% collapse in house prices.

The Office for Budget Responsibility (OBR) last month predicted that a more conservative drop of 9% is expected between now and autumn 2024.

Whatever the truth, research published by the Daily Telegraph recently estimated that around 89,000 homeowners who purchased their properties with small deposits in 2020 and 2021 could be unable to refinance when they come to the end of their fixed-rate mortgages in the next two years because they have fallen into negative equity.

If this situation remains unmanaged – or even accelerates – it has the potential to have profound repercussions for the sector’s success in 2023.

I’m very much aware that the appetite to lend remains high within the specialist finance market – but there are now the clearest possible indications that loan to values may increasingly struggle to meet outstanding debt figures.

To state the obvious, if borrowers are unable to raise the funds to cover shortfalls it will prevent refinance exits from progressing.

As 2023 dawns, lenders must scrutinise underperforming or default loans more closely than ever before and the speed with which these default loans can be recovered must also be carefully considered.

Separately – but intrinsically related – is the simple fact that I’ve witnessed first-hand how the backlog of possession claims has constantly increased in the courts in 2022.

This currently shows no signs of abating.

To conclude, it remains imperative for lenders to stay ahead of their competitors by commencing repossession proceedings at the earliest possible opportunity.

CG&Co has consistently achieved the best possible outcomes for our clients over the past year – and throughout the Covid pandemic – by adopting the most proactive approach possible to property receivership.

And we’ve no intention of deviating from this as the economic storm unravels in 2023 and beyond.

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