It's no secret that the exit in a bridging transaction is of huge importance. Therefore, with the region's bespoke laws, the process of exiting a loan in Scotland differs to that in the rest of the UK.
When it comes to the main difference between the UK and Scottish, Steve McColl of bridging finance specialist Soho Corporate said: “The options for exit are lesser, with a fewer number of building societies and second tier lenders available for a refinance.”
With the Scottish repossession process, lenders and borrowers are forced to encounter delays and higher fees. Due to the precedent set by the case of RBS vs Wilson in 2010, lenders are required to serve a calling up notice and wait two months before proceedings can commence.
During that period, additional interest will accumulate on the loan and additional costs will be needed from the borrower in relation to calling up the notice. Also, there is a chance of increased shortfall of debt when the property is eventually sold as property prices may fall in the two month period.
In response to the matter, the Council of Mortgage Lenders (CML) said it found it hard to see any benefit from the two-month period. It said: “Post-Wilson, it is now more time consuming for a lender to obtain possession in Scotland than in any other jurisdiction of the UK. We fully accept that there needs to be a balance between the rights of lenders as creditors and the rights of borrowers as debtors but in our view the balance in favour of borrowers certainly in the case of regulated mortgage lending following the Wilson case has probably gone too far and may not be in their best interests.
“Both existing and future borrowers who are served with calling up notices are likely to experience delays and the associated costs, most notably through contractual interest, brought by the new process.”
When asked how these differences in exit influence Soho Corporate’s decisions, Steve McColl said: “In essence, we are quite pragmatic and will often have an informal discussion with a term debt provider to ascertain whether in theory they would provide and exit and at what level for our borrower, so that we do not go into a deal blind, hoping that a term debt lender exists on a wing and prayer.”
He added: “Many lenders remain unwilling to lend in Scotland. Scotland suffers from ‘postcode fear’ where lenders will not lend outside of the central belt, i.e. the lender’s focus is specific ‘G’ - Glasgow and ‘EH’ - Edinburgh postcodes.
“Primarily the fear rests on the fact that Scotland has a separate legal system, and the English based lender will take a view that any problem is (too) ‘far from home’ for them to deal with.”
Findings revealed that from 1994 to 2000, 75 per cent of cases saw lenders in Scotland make losses on properties they repossessed.
Recovery for the Scottish housing market was spotted on the second quarter of 2013, as the CML found that lending for house purchases had increased by 45 per cent from the first quarter, totalling at 14,500 loans advanced at the value of £1,740 million.
The buzz in activity up in Scotland has drawn the participation of a lot of lenders this year, including Ortus Secured Finance, Bridging Finance Solutions Group and Masthaven.
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