New lending is being severely restricted by the practicalities of a country in lockdown while significant resource is being channeled away from new business teams to help handle payment holiday enquiries.
The Ministry of Justice and Financial Conduct Authority (FCA) have published unambiguous guidance of their expectations regarding the enforcement of loans and mortgages, and the progress of possession proceedings during this period, which is further limiting collections activity and cashflow.
Then, of course, there is the potential reputational harm to consider for lenders carrying out any sort of recovery activity in the current environment.
However, it is worth remembering that the mortgage market has always adapted to the toughest of lending environments.
Auctions performing above expectations
Now is not the time for sitting on one’s hands and there is much that can be done, to improve prospects of recovery, and position businesses for the exit of restrictions.
Some liquidity remains in the market, as both refinance and sales are taking place. I am seeing that first-hand.
Auctions, given the climate and lockdown, have performed remarkably better than expected.
If there are buyers now, there are likely to be more the further we go down the Covid-19 path.
So, collection departments should also be pushing on, within restrictions.
Now more than ever before, however, this requires intelligently crafted recovery strategy and implementation, carefully designed to avoid any breach of guidance.
Engage with borrowers
It is vitally important to engage with borrowers now, and in a collaborative way, as this will stand lenders in good stead for the future.
Indeed, rather than being anxious of this approach, lenders can take some comfort from the fact that the government has made it clear that constructive negotiations should take place in all scenarios to reach a solution on payment.
Positioning is of particular importance for second charge lenders, where being first out of the blocks ahead of prior registered chargees will be crucial.
Proper planning and execution of these strategies is needed.
For example, issuing a formal demand for repayment is specifically excluded from current guidance and, while the appointment of receivers is still possible, their activities will be limited by the moratorium on repossessions.
However, they will have an important role to play in the here and now.
Consensual agreements between lenders and debtors do remain possible and can include payment arrangements and, in some cases, voluntary sales and delivery up of possession agreements.
The same with pre-enforcement agreements, which have contractual force, and will facilitate and accelerate enforcement post-moratorium, if necessary.
Proactive lenders put themselves in a stronger position
By operating proactively, lenders gain realistic visibility of their book and their futures.
This can be particularly important for short-term lenders reliant on exit arrangements or a borrower’s plans to extend their facility, many of which will have been impacted and/or lost.
Lenders that take this approach put themselves in a far stronger position to manage collection and recovery strategy during and post-moratorium.
Importantly, from the FCA perspective, they also meet core principles by having made debtors aware of where they sit, where they may sit post-moratorium, and by offering options to them which can mitigate against increasing indebtedness, against a potentially reducing property asset, and the dilution of their equity.
That is surely acting in the customer’s best interest.
The current environment is undoubtedly difficult for lenders, but by taking a properly planned and proactive approach to working with borrowers, and getting creative, they put their business in a far stronger position for the future.