Tag: Mortgages

Strong arm tactics and fractured thinking

Post author By Tony Groom
Post date May 6, 2014
No Comments on 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.

Tags Banks, buy to let property, loans, Mortgages, UKAR

Banks, Lenders & Investors Cash Flow & Forecasting General Rescue, Restructuring & Recovery Turnaround

Unintended consequences

Turning around a struggling economy, like turning a business in distress, is a complex process where it is wise to be mindful of the possibility of unintended consequences.
Here are a couple of examples of ideas and policies that seemed like a good idea at the time.
First, of course, was the idea that it was possible to mitigate the risks inherent in subprime mortgages by packaging them with safer loans and creating complex insurance products for protection such as Credit Default Swaps and we all know where that led us in 2008.
More recently, despite many warnings against creating new housing bubbles, the Government’s Help to Buy lending scheme was supposed to encourage construction firms to start building sorely-needed homes. What has happened so far? Anaemic growth in house building, surging house prices and an explosion of Buy to Let mortgages.
Removing planning restrictions in order to make it easier to convert redundant High Street shops into homes is one scheme of many to revive struggling High Streets. How about actually addressing the issue of sky high business rates, last set in 2008 before the financial crisis with a review postponed until 2017? There are approximately 40,000 High Street shops currently empty. Why would anyone start up a new retail business when business rates are so high?
I am sure you will all be able to come up with many other examples.
Two questions: why do we seem to be incapable of learning the lessons of history? Do we rely too much on social, economic and business models that can never accurately encompass the complexities of real life and real people?

Tags business models, Business Rates, business revival, Business Turnaround, economy, High Street Retail, Mortgages

Banks, Lenders & Investors Business Development & Marketing General Insolvency Rescue, Restructuring & Recovery Turnaround

Are Estate Agencies Safer Businesses Now than they were in 2008?

Post author By Tony Groom
Post date June 13, 2011
No Comments on Are Estate Agencies Safer Businesses Now than they were in 2008?

The sub prime mortgage crisis that precipitated the 2008 global recession led to plummeting property prices, very limited mortgage lending, repossessions and to a dramatic slump in the housing and commercial property markets.
Estate agencies were among the first businesses to feel the effects of the crisis. By December 2008 an estimated 40,000 employees had lost their jobs while around 4,000 estate agency offices -approximately one in four – had closed.
The smallest agencies, of perhaps four or five branches or less, were worst affected particularly if they depended solely on property sales.
So is the worst over now for the estate agency business? Not if the most recent information on the housing market is any indication.
Gross mortgage lending declined to an estimated £9.8 billion in April 2011, down 14% from £11.4 billion in March and the number of mortgages approved for house purchases hit a new low in April, at 45,166, the lowest April figure since records began in 1992.
The Council of Mortgage Lenders predicts that the numbers of homes repossessed will rise from 36,000 in 2010 to 40,000 in 2011 and 45,000 in 2012 and the online housing company Rightmove reports that average unsold stock rose from 74 to 76 properties per branch, reaching the highest ever level for May.
Although the housing market varies significantly in different parts of the UK, with London booming and East Anglia holding steady while the north suffers there is also evidence that the demand for rented property and buy to let property is rising along with rent levels.
None of this suggests that the business of estate agency is likely to be any more secure for a few years yet. If the High Street agents are to survive they need to revisit their business models, diversify their activities into letting, make use of online marketing and be sure they are up to speed on all the regulations governing landlords’ and tenants rights’ and other property letting regulations.