Strong arm tactics and fractured thinking

 

Many Buy-to-Let landlords who bought property before the Great Financial Crisis are being subjected to strong arm tactics by lenders.

UK Asset Resolution Limited (UKAR) is the holding company established in October 2010 to “facilitate the orderly management of the closed mortgage books” of Bradford & Bingley (B&B), its subsidiary Mortgage Express (MX) and Northern Rock Asset Management (NRAM). The run-off period UKAR was anticipated as taking between five and ten years.

It would seem that UKAR are becoming more assertive in their zeal to recover taxpayer money, despite the consequences.

Landlords are being sent demands, for full repayment of loans giving only a few days’ notice. If followed through this would result in personal guarantees being called and trigger the bankruptcy of many landlords.

Even when landlords are not in arrears due to low interest rates, UKAR are relying on clauses in the loan agreements such as those that relate to ratios defined as a Loan to Value covenant.

In one recent case repayment of approximately £1.4 million was demanded by NRAM giving 7 days notice even though their client wasn’t in arrears. This was following a valuation of six Buy-to-Let properties out of a portfolio of ten very different properties two years previously. Extrapolation of the part valuation was used as the pretext that the total value breached a Loan to Value covenant of 80%.

In another case, a landlord tried to sell one property in a portfolio, but discovered that the fine print meant she had to sell the whole portfolio.

It should be acknowledged that many of these mortgages are interest only which concerns UKAR about its ability to meet target dates for the run-off time frame. Furthermore most of these loans have come out of a fixed rate period and are now benefiting from low interest rates with UKAR being concerned about landlords’ ability to service interest when rates rise.

However, these concerns do not justify a 7-day notice letter.

Instead cool heads are needed to develop solutions such as those that can be developed by independent turnaround advisers.

Strong-arm tactics tend to invoke fear and a lack of trust, they are not the way to reach consensual agreement.

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