The Challenges of acting as an LPA advisor
From a commercial property viewpoint an easing of credit and availability of finance for property lending will provide some real impetus to growth. My colleague Neil Slade talked about a shortage of new development where demand exists but credit is difficult and I thought it was worth supporting Neil’s piece with a little more detail. Well the headline from the latest Ernst & Young Item Club that “The crippling credit crunch is loosening” certainly seems to be a pointer that the availability of credit may be getting a little easier. There is little doubt that the ongoing credit crunch and crisis in the Banks continues to affect business thinking nearly 5 years on from the start of the world’s economic woes. The effects on property both commercial and residential are well catalogued and there for all to see – not least the retreat of values! It is not an argument for inflating property values – what we need is more financial liquidity in the market to ‘make things happen’. The Item Club lays bare some of the statistics around the credit crunch. Part of their commentary was how UK Banks borrowed “£900 billion” that was borrowed from overseas up to 2008 and how we’ve been paying the price ever since as the UK reigns back from the £100 billion a year that Banks were using to fund domestic lending.
The Item Club explain that once it happened, the breakdown in the funding markets triggered several other crucial factors. Secondary banking subsidiaries had to be supported, straining capital adequacy ratios. Loan losses had the same effect. Bank boards, as well as their shareholders and regulators, became very risk-averse as the losses mounted. Tougher capital and liquidity requirements exacerbated the lending squeeze. The ensuing recession made Banks even more worried and of specific concern for those earning their money in the property market, about the solvency of mortgage borrowers and small businesses. Lending was depressed because the economy was depressed and vice versa, a classic vicious circle.
The Item Club thinks the background of tight credit and the Banks’ liquidity issues may be coming to an end with credit and liquidity requirements having been relaxed. The Bank of England’s new Funding for Lending Scheme is designed to increase the flow of credit and reduce its cost, increasing the funding gap, or at least slowing the speed at which it is paid down. It will reinforce the effect of the revival of the UK mortgage-backed securities market seen in recent weeks.
Ernst & Young say that ‘Although banks remain very risk-averse, they are effectively shifting the risk lending to affluent home buyers who have equity to invest. In the case of first-time buyers, the builders and the government are shouldering the risk through new-buy schemes. The banks’ capital base is also recovering’ they say. Furthermore they comment that ‘These developments help to explain the marked improvement in the mortgage market suddenly being signalled by the Bank of England’s Credit Conditions survey, the sharpest since this survey began in 2007. In the third quarter of this year, a significant proportion of mortgage lenders said they had loosened their lending criteria or were planning to do so, while 22% were planning to reduce the mark-up on mortgage rates. The survey suggested that little movement in unsecured lending and forecast a continued deterioration in the outlook for lending to small companies, which it seems, are still regarded as too risky. Nevertheless, these developments are encouraging.’
A lot of economic detail but for ‘property watchers’ and for those like us working in the property industry these are important pointers for how the market may perform over the next 12 to 24 months.
Not sure we can say this is the end of the credit crunch although we’d all hope that, it may just be the ‘end of the beginning’ though
Acting as an LPA Receiver brings individual challenges with each different case and none more so than one of the most recent assignments where I acted as LPA on a former manufacturing complex in the Black Country. Appointed by the bank, we turned around a situation where the property’s occupier sadly had to enter Receivership due to onerous pension fund liabilities and downsize into a property they owned next door. This rendered the property over which the bank had the charge, vacant and vulnerable with no income to pay off the debt.
As a large manufacturing unit the first action, as with any building, is to insure the premises and to make sure it’s secure. The temptation for thieves to strip out precious metals such as cabling from the property would be high. Security therefore was a high priority and had to be substantial and we weren’t proved wrong as metal thieves tried an assortment of methods to gain entry ranging from breaking through perimeter fencing and gates, attempting to bribe the security guards to ‘turn a blind eye’ in the middle of the night and when these failed throwing petrol bombs at the guards and dogs! Making sure your security guards are competent is one thing but having some robust professionalism is pretty important too!
In this case I was working alongside my agency colleagues from our Birmingham office as they marketed the building on my instructions. We were fortunate that after bringing together all interest and after a competitive bidding process that we instructed solicitors and completed the sale in less than 4 weeks. A satisfactory outcome for all concerned and those nights when I’d wake up wondering if the thieves had attempted to break in again all melted into the background.
As an LPA Receiver your main duty is to act in the best interests of the lender that has appointed you. These duties include collecting rent, looking after the property, making sure it’s secure, repaired and insured, managing and liaising with any tenants and if the property is to be let or sold arranging for the property to be put on the market and managing the disposal to achieve the best possible price so that the debt can be repaid. In essence an LPA Receiver steps into the shoes of the property owner and manages the asset to ensure it performs well, that running costs are appropriate and reasonable and that the best income/capital receipt given the particular circumstances is achieved.
Never easy and rarely straightforward acting as an LPA keeps you vigilant at all times and always to ‘expect the unexpected’. It requires a methodical and clear thinking approach and the ability to work with other professionals to achieve the best outcome.
For more information or help with LPA work contact myself or Andrew Lamb on 0121 455 9455 or email jacqui.bayliss@harrislamb.com