What lenders must bear in mind as the stay on enforcement lifts

By

Daniel Richardson - Partner CG&Co

EVERYONE’S hoping that something approaching “normal” will now resume professionally at the earliest opportunity.

But – from the perspective of a Property Receiver – it doesn’t feel as though the fallout from the Covid-19 crisis is remotely behind us.

This was a key point to emerge from a recent digital event entitled ‘Lending after Lockdown’, at which I was delighted to be one of the keynote speakers.

Lenders simply must ensure that they’re fully and expertly briefed about the repercussions of what’s rapidly unfolding at every step.

Here’s why…

As things stand, the stay on the enforcement of possession orders in England will be lifted on May 31. In Wales, that date is June 30 while in Scotland it’s September 30.

Nonetheless – bar for unforeseen circumstances – it should mean that in the coming days and weeks, bailiffs or High Court Enforcement Officials will once again be able to evict those occupying property where loans have defaulted.

When it comes to enforcement, something approaching “normality” as we knew it pre-pandemic should be about to return.

Equally important for lenders to consider is what’s happening in the wider economy.

Take the furlough scheme which is currently in place until September 30.

Many companies will undoubtedly have become reliant on these subsidies – and there will be to be business casualties accompanied by rising unemployment when it ends.

The knock-on effect of this is likely to be that many tenants won’t be able to pay their rent and property owners won’t be able to meet their mortgage payments.

Arrears will accumulate.

Those that do retain their employment – or indeed those that were fortunate not to require furlough – may very well have taken up the opportunity of a mortgage payment holiday simply because it was available.

In such circumstances, there’s a risk that habits can quickly become formed.

If borrowers have had a break from their traditional monthly payments while also taking on additional financial commitments to tide them over, there’s an increased risk that they might struggle to recommence their mortgage payments.

Given the prevailing economic uncertainty, I believe that it’s now inevitable that defaults will increase due to mortgage payment arrears or the expiry of loan terms.

Whilst the appetite to lend is high within the specialist finance market, loan to values may struggle to meet outstanding debt figures, with borrowers unable to raise the funds to cover shortfalls, preventing refinance exits from progressing.

Lenders must ensure that they consistently identify underperforming or default loans, especially those where the term has expired.

They need to take action at the earliest opportunity, particularly as the expected backlog of possession claims could take a considerable amount of time to subside.

In CG&Co’s experience, engagement and negotiation with borrowers is paramount to mitigate this situation – but prompt and decisive action must be taken.

To conclude, the repercussions of the pandemic on our sector continue to evolve.

What’s more, this situation is unravelling at a time when it’s imperative for lenders to ensure that they’re able to use their own funds to relend at rates that are most advantageous to them.

CG&Co has consistently achieved this for our clients over the past year.

The most proactive approach to Property Receivership is now more important than it has ever been before.

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