Dave Miller

Bridging loans due for repayment within next three to six months 'could be heavily impacted'



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It’s fair to say that the last couple of weeks have been pretty crazy all round.

It seems like another lifetime when many of us were welcoming the package of measure outlined in Rishi Sunak’s Budget to help SMEs and the leisure sector more generally. Since then, the scale of the support on offer has increased by several orders of magnitude, and if this isn’t enough, then there’s potentially more to come.

In the property sector, we’ve seen the introduction of three-month payment holidays, with the FCA talking about extending this period if necessary, and a freeze on evictions. The demand for payment holidays has been huge, with lenders witnessing large volumes of calls a day queuing to speak to an adviser.
  
The impact of the coronavirus on the bridging sector is shaping up to be especially profound. Loans due for repayment within the next three to six months, and maybe longer if current measures are insufficient to get us back to something like normality, could be heavily impacted.

Any projects involving extensive renovation or refurbishment could be hit by delays as construction workers fall ill or are forced to self-isolate, and if contractors, along with supply chains in some cases, cease trading. Exit strategies could also be badly affected as property values can be expected to take a hit in the short-term at least, meaning expected sale or refinance options are reduced.

We have already seen a number of lenders exit the BTL market and, since the government has not classified estate agents as essential workers, the ability to engage with local property experts in some areas might be limited. We are seeing agents such as those in the Spicerhaart group move to a new way of working, embracing technology and servicing both vendors and buyers in new innovative ways.

With the restrictions currently in place, the logistics of actually securing sale or refinance may prove extremely difficult. It is going to be increasingly difficult to get RICS valuations on properties — a problem that will affect existing and potential new lending alike.

Sadly, it is hard to see the situation improving very quickly, even once the immediate coronavirus pandemic is over and we start to get back to something like normality.

While it is undoubtedly sensible to give help to property owners and tenants alike during this unprecedented crisis, the measures taken will do nothing to improve their situation in the long run. Indeed, for some individuals and businesses that were already struggling prior to the crisis, it could make matters significantly worse, adding to the arrears or interest burden they face when that temporary reprieve ends.

The knowledge that they will not face eviction or repossession during this limited time period may lull some a false sense of security and will certainly give them less incentive to engage openly with lenders. This is bad news for those individuals, of course, but it is also potentially a big hit for lenders just when they can least afford it.

Lenders would be wise to prepare the ground for this by putting in place a strategy that redoubles efforts to engage constructively with borrowers and to reassess the risk associated with individual properties and their loan portfolio as a whole.

Finding the time to do this, with the pressures of the volumes of calls being received, will be difficult in the short term. But it could pay dividends as the country begins to emerge from lockdown.

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