THIS country now desperately needs a period of undramatic and stable government.
The economic situation is dire and whatever the new Prime Minister does initially is likely to prove universally unpopular as he attempts to ensure that we don’t experience an even worse downturn.
To state the obvious, economies only grow when stability is present.
And Rishi Sunak is clearly in no doubt about the tough job that lies ahead of him…
The World Bank recently announced that there was a risk of global recession in 2023 and encouraged governments globally to implement policies to curb inflation without “exacerbating recession risk”.
Consequently, it’s essential that Sunak addresses and prioritises the ongoing and pervasive political instability first in order to ensure that he is subsequently in the best position to promote economic stability.
This is in everyone’s best interests.
It’s only when borrowers feel confident about this stability that they’ll look for deals – and lenders will be able to attain the success they so richly deserve.
I know from talking to lenders every day that their appetite to complete these deals remains strong.
But the unfolding cost of living crisis combined with double digit inflation have understandably done much to dampen enthusiasm.
And then there are enduring concerns over the potential for a property market crash…
The Oxford Economics forecasting consultancy has predicted that there will be a 10 to 15 per cent price fall over the next two years in the residential market.
UK house price growth has now been unbroken for more than a decade.
Indeed, the Office for National Statistics (ONS) has recorded an increase every month since May 2012 – and house price growth in Britain hit a 20-year high of 15.5 per cent as recently as July 2022.
It remains to be seen whether some borrowers have been lulled into a false sense of security surrounding the strength of their property investments.
What we know for certain at this point in time is that the impact of rising mortgage rates will clearly begin to hit both demand and spending power in coming months.
It’s also well-documented that interest rates are a key “lead indicator” for what is about to unfold in the property market.
This house price slump is clearly yet another iceberg ahead for lenders.
For obvious reasons, there’s a risk that loan to values will increasingly struggle to meet outstanding debt figures in 2023 and beyond.
It could mean that borrowers are increasingly unable to raise the funds to cover shortfalls which, in turn, will increasingly prevent refinance exits from progressing.
CG&Co has remained fully committed to ensuring that lenders can relend at the best possible rates using their own funds throughout the pandemic.
And we’ve no intention of deviating from this approach now.
But lenders must prioritise the identification of underperforming or default loans at the earliest opportunity – especially those where the term has expired.
What’s more, these default loans must be acted upon immediatelyby working with the most proactive and knowledgeable property receivers.
As we wait to see what transpires both economically and politically in coming months, this imperative will only increase.
Edward Gee and Daniel Richardson are property receivers and insolvency practitioners at CG&Co
