News article topics: Receivership
Date: 02 July 2024
Constructive deferment, exit - or indecision?
In our 2023 year-end analysis we reported market sentiment as being an increasing lender focus on assessing delinquency whilst fully encompassing Customer Duty, but not appointing – in some instances to the potential detriment of both parties.
Nevertheless, that year closed with an increase of 38% on 2022 Fixed Charge Receivership appointments* for corporate loans. The first six-months of 2024 show appointment levels were 13% above the same period for ’23.
However, the initial surge of appointments seen at the start of this year in our Q1 figures, and which continued the escalating trend shown through Q3 and Q4 2023, has been slowed by the notably low level of appointments made in June this year.
Analysis of the figures shows the majority of appointments – now consistently in excess of 75% - are residential; this sector is under the greatest focus by lenders in pursuing an exit. It reflects both the challenging buy-to-let regime (interest, taxation, occupier performance) with yields moving out, as well as failed resi-development schemes. Such schemes are suffering the impact of interest rates, materials cost, labour shortages – with implicit labour rate increases - and consequent and expensive delays in project progression. These schemes range from single to 100+ unit schemes.
Interestedly a small number of our members have been appointed over high value single, residential new-builds at loan figures in excess of £15M.
Our members foresee this entire sector as being under stress for at least the remainder of the year. There remains however a strong demand for the end product, especially in London & South-East and which demand has ameliorated thus far a potentially much worse position.
The economic regions with the highest level of appointments (all sectors) are:
London – 18%
South-East – 27%
North-West – 15%
South-West – 9%
Our view is that post July, regardless of the election outcome, the necessary tax increases to address the UK issues flagged by the IMF will lead to yet further pressure in the residential investment sector. Financial markets have already factored this in, but that is not necessarily the case for real estate: we see real potential here for impact on disposal time lines.
The industrial sector is rarely represented in our figures, High Street retail similarly minimal and some, but not many, offices. There has been a recent increase in hospitality sector appointments, specifically small hotels & guest houses, but this does not appear to be establishing an on-going trend at this stage.
Our specialist agricultural members have seen a slight increase in appointments, driven predominantly by either subsidy withdrawal and/or a failed change of focus from core activity.
Members still report examples in some sectors, of weak lender due-diligence, even for loans created within the last two years and especially in some parts of the secondary markets. The absence of adequate resource and experience in lenders’ recovery teams is increasingly noticeable.
Against that background, members are busy (some are recruiting to meet demand) giving primary advice and overviews, with the decision then often taken to defer further action.
Where appropriate advice is taken, then a constructive and consensual deferment may be achievable and an appointment avoided. The danger is that of indecision: there are numerous instances reported by members, where deferral has proved inappropriate with the scheme re-assessed some 12 months later at, a then substantially, increased risk exposure.
*Appointment refers to the individual charge – it may encompass a single unit, a development, or a portfolio; it is not a measure of individual properties.
In our 2023 year-end analysis we reported market sentiment as being an increasing lender focus on assessing delinquency whilst fully encompassing Customer Duty, but not appointing – in some instances to the potential detriment of both parties.
Nevertheless, that year closed with an increase of 38% on 2022 Fixed Charge Receivership appointments* for corporate loans. The first six-months of 2024 show appointment levels were 13% above the same period for ’23.
However, the initial surge of appointments seen at the start of this year in our Q1 figures, and which continued the escalating trend shown through Q3 and Q4 2023, has been slowed by the notably low level of appointments made in June this year.
Analysis of the figures shows the majority of appointments – now consistently in excess of 75% - are residential; this sector is under the greatest focus by lenders in pursuing an exit. It reflects both the challenging buy-to-let regime (interest, taxation, occupier performance) with yields moving out, as well as failed resi-development schemes. Such schemes are suffering the impact of interest rates, materials cost, labour shortages – with implicit labour rate increases - and consequent and expensive delays in project progression. These schemes range from single to 100+ unit schemes.
Interestedly a small number of our members have been appointed over high value single, residential new-builds at loan figures in excess of £15M.
Our members foresee this entire sector as being under stress for at least the remainder of the year. There remains however a strong demand for the end product, especially in London & South-East and which demand has ameliorated thus far a potentially much worse position.
The economic regions with the highest level of appointments (all sectors) are:
London – 18%
South-East – 27%
North-West – 15%
South-West – 9%
Our view is that post July, regardless of the election outcome, the necessary tax increases to address the UK issues flagged by the IMF will lead to yet further pressure in the residential investment sector. Financial markets have already factored this in, but that is not necessarily the case for real estate: we see real potential here for impact on disposal time lines.
The industrial sector is rarely represented in our figures, High Street retail similarly minimal and some, but not many, offices. There has been a recent increase in hospitality sector appointments, specifically small hotels & guest houses, but this does not appear to be establishing an on-going trend at this stage.
Our specialist agricultural members have seen a slight increase in appointments, driven predominantly by either subsidy withdrawal and/or a failed change of focus from core activity.
Members still report examples in some sectors, of weak lender due-diligence, even for loans created within the last two years and especially in some parts of the secondary markets. The absence of adequate resource and experience in lenders’ recovery teams is increasingly noticeable.
Against that background, members are busy (some are recruiting to meet demand) giving primary advice and overviews, with the decision then often taken to defer further action.
Where appropriate advice is taken, then a constructive and consensual deferment may be achievable and an appointment avoided. The danger is that of indecision: there are numerous instances reported by members, where deferral has proved inappropriate with the scheme re-assessed some 12 months later at, a then substantially, increased risk exposure.
*Appointment refers to the individual charge – it may encompass a single unit, a development, or a portfolio; it is not a measure of individual properties.
