Lenders urged to review loan books as default risk increases
Lenders have been advised to review their loan books as economic headwinds impacting the UK economy make a surge in defaults more likely.
Speaking at a Security Review and Enforcement Seminar at London-based law firm Rosling King (team pictured), finance partner Alex Edwards commented that given the multitude of factors driving the current economic crisis, including the slump in the value of the pound, rising construction costs and supply chain issues, there is a real possibility that borrowers will default on their loans.
King was joined by real estate partner Ann Ebberson and dispute resolution partner Kate Rigby, who agreed lenders need to identify those borrowers who may be more exposed or who may already be showing signs of heading towards breached covenants or missed payments.
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They said security reviews should be essential part of a lender’s enforcement strategy, confirming the validity of its security over a borrower’s assets; they enable lenders to identify any issues in their lending or security documents.
A security review is likely to focus on, material risks that security might not be valid or open to challenge, identify assets which are not subject to valid and effective security, identify steps the lender could take to rectify any defects and look at enforcement and any restrictions on those options.
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“We are facing difficult economic times and lenders should be looking for signs that their borrowers may be facing problems, early interaction is imperative to try and prevent defaults on lending and to maximise recovery options in the event that borrowers do default,” Edwards said.
Ebberson noted that there are a number of options available to lenders to enforce their security in the event of a default or breach of security on their loan.
“The options available to lenders are governed by their security and lending conditions, so it is vital that lenders are aware of their existing security and how it entitles them to act,” Ebberson added.
In the case of defaults, lenders were recommended to exercise their power of sale under the provisions of the Law of Property Act 1925, sell the security property and appoint a Law of Property Act receiver or fixed charge receiver.
Lenders can also enforce a guarantee and look at enforcing any collateral warranties that have been assigned to them.
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