Lenders may seek aid for Covid-19 losses

Covid-19 has exposed mortgage providers and other lenders to potentially huge losses

Although the UK government’s primary focus must be to maintain and kick-start our ravaged economy, a colossal challenge involving mortgage providers and other lenders looms around the corner.

Banks, building societies, and other lenders have loaned out lots of money, and securitised properties, machinery and other assets. Additionally, they have financed the housing market by lending to everyone from first-time buyers to property developers.

But the temporary restrictions on statutory demands and winding-up petitions prohibit creditors from enforcing payment of Covid-19 related debts.

The situation leaves lenders heavily exposed, particularly to buy-to-let landlords and commercial freeholders. Mortgage providers and other lenders must address these issues to avoid insolvency. After the economy stabilises, don’t be surprised if lenders try to solve their problems by asking the government for another bailout package.

Mortgage providers and other lenders can profit from property repossessions

In these situations lenders are only concerned with money. Consequently, expect repossession to become a major concern for landlords with debts, irrespective of the size of their portfolios.

E.g. a landlord with properties worth £5m and mortgage debts of £500,000 should fear repossession in 2021.

If landlords are unable to service mortgage payments, lenders will eventually take possession of their properties. They will appoint a Law of Property (LPA) receiver to sell the properties quickly and at a heavily-discounted price.

In due course, cash-strapped and insolvent companies will become overwhelmed by the repercussions of the pandemic. However, businesses with cash reserves will be able to purchase as many properties and companies as they can afford.

In a trading environment such as the 1 described above, suppliers must take extra precautions when deciding who to offer credit.

Suppliers should include provisions and stipulations in the terms and conditions of contracts to protect their companies. Most importantly, they must not hesitate to take enforcement action as soon as an invoice becomes overdue.

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