But, while this function may not achieve the PR coverage of its sales equivalent, let’s face it: their role within a lender is pivotal.
When times are good, the focus of lenders’ senior management teams is often growth – in business development, completion pipelines, product launches, new technologies and customer service. However, when market conditions are trickier (as they were in 2007/8, and as they are today), a lender’s imperative quickly shifts. Whereas once, loans repaid with relative ease, now the landscape is changing; property values are uncertain, buyers are nervous and sales are stalled. But loans still need to be repaid.
If your business is lending against property during a period when the sector is under strain, I strongly believe that the way you interact with your borrowers becomes of the utmost importance. As a wise industry pundit once said, “Anyone can make a loan, it’s having them pay back which is the testing part.”
Clearly, the fine art of redeeming loans begins long before the funding is drawn. The foundations are built with the design of the products, where risk is laid out and lending parameters are agreed. Playing an equally important role are the underwriters – the people who carry out careful due diligence of the borrower and asset to fully understand the risks and the rewards. They are always seeking to strike the balance of a win-win situation, where the customer is treated well and provided with the means to undertake their property opportunity, whilst the lender’s risk is well managed and profit will be made.
With these ducks in a row, the loan is advanced. And we celebrate another deal done, another intermediary paid and another customer helped. But, as I said before, this is not the end of the story; for the borrower, it is just the beginning.
At Catalyst Property Finance, our motto is “making sure our customers never miss a good opportunity” – and those opportunities vary: the investor buying an apartment block to refurbish and let; the developer refinancing to release equity and fund their next build; or the portfolio landlord purchasing her next BTL at auction. We provide the funding and look forward to hearing about their property adventures.
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It is at this point, the redemptions team become involved. At Catalyst, each borrower is allocated a loan servicer, a dedicated point of contact, who will keep in touch throughout the loan. They oversee and check interest payments, arrange further drawdowns and discuss extensions (if needed). A good loan servicer protects the interest of the lender but also provides real support to the borrower through good times and bad.
And when it comes to more challenging loans, the redemption process begins with forging a true partnership with the borrower. Open and regular communication is key, as is knowing when to offer forbearance and being fair. Not being a fair-weather lender, but being fair. These more complex scenarios require a proactive and hands-on approach; it is not unusual for our loan servicers to speak with borrowers several times a week. Good brokers are worth their weight in gold during this time, too.
To date, we have never repossessed a property. We are proud of this fact but understand that day will probably come. To ensure our loan book remains strong, during lockdown we circled in more of our senior managers to ensure that we could best look after our customers and our portfolio. I mentioned ‘win-win’ and this was the strategy we took. It is in both our and our customers’ interests to be able to successfully have loans paid back. Over 90% are being repaid as normal but where customers were struggling through no fault of their own, we offered temporary forbearance. And we have a variety of options in our redemption toolkit. For example, the owners of a new day nursery, which could not open due to Covid-19, were given a payment holiday. In other cases, property developers have been granted loan extensions to increase their sales periods. We have also been able to ‘roll up’ the interest to ease the cashflow pressure on a property investor. These strategies are working, our loan servicers are reporting more loans being repaid in full.
As the property market reopens and we return to a more (new) normal lending landscape, perhaps lenders should address the balance of our front and back offices. Yes, business development is undoubtedly wonderful and, without them, there would be no lending. But, redeeming loans is as important. So, here is a shout-out to loan servicers: not only do you play a vital role in our businesses, when you do it well, our customers will remember the incredible support given and they will repay and come back to us time and again. And that is the art of lending.