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Has the last 12 months been the real estate loan disaster so widely forecast by the press?

News article topics: Receivership

Date: 31 January 2024

Has the last 12 months been the real estate loan disaster so widely forecast by the press?
In a word: no, but the signs are not encouraging. Whilst the spiral of ever increasing interest rates has abated, the BoE Monetary Policy Committee shows no appetite currently for a reduction from the 5.25% set in August 2023. Indeed, hopes of an early 2024 reduction faded rapidly, with investor speculation now anticipating May 2024 at the earliest.

In our half-yearly comment in June 2023 on Fixed Charge Receivership (FCR) appointment data, we reported that while appointment volumes were rising there appeared to be no wholesale rush to exit: that remains the case.

The data shows nonetheless that FCR appointments have continued to increase steadily throughout the whole of 2023.

The first six-months of 2023 showed an increase of 85% over the same period in 2022. What we see now, in comparing the last six-months of 2023 with the first six months of 2023, is a further 12% increase.

These figures do, inevitably, cover the lengthy Christmas recess and avoid the cold realisation of the bleak challenges that arrive every January. It is more relevant to compare total appointments for 2022 and 2023. Here we see a notable increase of 38% year on year. Taking a longer term five-year look, volumes are now some 80% higher in 2023 than was the case in 2018.

What we see is a continuous and steady increase in corporate FCR appointments, beginning slowly in 2021, accelerating steeply through Q2 2022 to Q3 2023 with a further slight increase in Q4 2023. The trajectory is clear and Q1 2024 will surely declare lenders attitudes to distress, in the knowledge of established higher rates that are unlikely to change materially in the medium term.

Our regional analysis for the 2023 year shows that London and the South-East still lead the pack at 44% (44% Q3 2023) by number of appointments, North West second at 16% (17%), with the West Midlands now coming in third at 8% (6%), followed by the South-West 7% (5%), Yorkshire & The Humber 6% (8%).

In terms of sector there is a notable change between Q3 to Q4. The percentage of appointments secured on retail has increased from 5% of the total to 14%. Other sectors remain virtually unchanged with residential (to corporate borrowers) coming in at 37% of the total for Q4 (40% Q3).

There is no material change in the presence of the traditional lender, showing still at a commendable 4.4% in Q4 (5.5% Q3) of total appointments.

Our members report market sentiment as an increasing lender focus on assessing delinquency whilst fully encompassing TCF – in some instances to extreme and potential detriment. There is also some anecdotal evidence of Covid loans having been utilised to support borrower indebtedness and which has effectively delayed the inevitable.

Q1 2024 may well set the tone for the coming year. Look out then for our live lenders’ presentation and first quarter update later this year. This is exclusively for lenders – contact us to add your or a colleague’s name to the invitation list.

Our Annual Conference, free for lenders, will be held at Haberdashers’ Hall on 23rd May. See our website for full details shortly.

Nara is the trade association for Fixed Charge Receivers. Founded in 1995 their members are trained in real estate insolvency, professionally regulated and monitored. Recognised by lenders and regulators, Nara is the pre-eminent voice of fixed charge receivership.
Affiliate membership is free to lenders.

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