April 2019
By Daniel Richardson, Insolvency Practitioner and Property Receiver at CG&Co, Professional Partner to FIBA
Bridging finance has become increasingly popular in recent years, whether this be to assist with funding a development project, or a loan for other business purposes. It will be the intentions of many to exit the bridging loan via a refinance, either with a more traditional term mortgage, or a further short term option.
Brexit Concerns
Whilst there has been a general downturn in the UK property market, Brexit has certainly been a large contributory factor to reduced property values, with chartered surveyors specifically referencing Brexit in their valuation reports and making additional provisions for the same.
Whilst recent developments may provide some immediate short term relief, as the delay is only for another six months this is unlikely to bring any real stability to the property market in the coming months. Even if there is an eventual conclusion to the Brexit process on or before 31 October, the impact on the UK property market is unlikely to be known until the outcome is properly embedded into the UK economy.
Exit by Refinance
Throughout the Brexit process and as the UK was approaching the previously set deadline for leaving the EU, customers who were seeking a refinance to exit current bridging loans were encountering LTV issues, as valuations for new lenders were simply not meeting their requirements, and new loans were insufficient to meet the level of debt that has accrued, leading to current loans expiring and entering default, resulting in higher interest rates charged.
Exit by Sale
A sale of the property may have been the customer’s exit, but this has not materialised due to current market conditions and reduced prices. Whilst the property remains a good proposition, whether commercial or residential, if the customer’s expectations are unrealistic then they are unlikely to reach a conclusion to a sale prior to the expiry of the term of the loan, again resulting in default. If they can evidence an agreed sale, this may allow some additional time, but interest will accrue at increased rates and the longer the sale fails to complete the more anxious the lender will become.
Lenders Consider Enforcement Options
Whilst all lenders will of course attempt to work with their customers, and perhaps agree extension terms in some cases, most bridging models are to recycle funds into new deals at the expiry of others, and cash flows will have been calculated to enable this. If the funds are not back in the account, it cannot write new business and credibility with introducers can be lost.
Once in default the lender should review its options. Of particular concern will be where the security is a 2nd charge, as any equity once considered to comfortably cover the debt may now be significantly reduced. One simple remedy is to appoint a Receiver to enforce and deal with the property on their behalf, removing themselves from the process. The Receiver is likely to seek a disposal strategy in order to repay the outstanding debt as soon as possible. The appointment of the Receiver does not prevent the customer from continuing with a refinance, if this was to be their exit, and completing this to retain the property and repay the debt.
About CG&Co
With over 100 years’ experience, our Insolvency Practitioners and Property Receivers have the expertise to deal with default customers and return the funds to lenders swiftly. The key points to our service;
- Fast and proactive
- Free pre-appointment review
- Direct contact with appointed Receiver
- No fee on shortfall scenario
- All costs and fees rolled up to conclusion of appointment (no monthly bills or requests for ongoing expenses)
- Reporting requirements agreed with lender
To discuss default cases please contact Daniel Richardson on 0161 358 0210 or daniel.richardson@cg-recovery.com.