What next for the finance sector in property?

Many of us Property Entrepreneurs across the country will have leveraged our businesses by taking out some sort of finance on our businesses and especially on our property projects.

Those of us that were around during the banking crisis of 2007/8, will remember what happened to companies in a tough housing market, with many lenders freezing their lending altogether and in many cases, calling in their loans, with very little notice (28 days), meaning many businesses, even those that were large and successful, went into administration overnight. This was never massively publicized as we are talking business loans and not personal mortgages and as such, the general public was not really interested in knowing about the struggles of property entrepreneurs.

So, are we about to witness a repeating of history?

The answer is, of course, none of us have a clue how this is going to end, as this is a completely different crisis, with no similarities.

However, we should all remind ourselves that lenders are not charities and are experts at risk-mitigation. This means that each lender will be assessing the situation from their own perspectives and will be working tirelessly over the coming weeks to work out how they are going to minimize their losses. They will be trying to find a way forward where they can ensure their first charge will be repaid as per your contract.

So where does that leave you and what, if anything can you do?

The answer to that question is difficult as every business will be exposed at different levels and at varying points.

For example, the developer who is midway through construction or renovation has to assess different factors to a company who has finished projects but was using these assets as serviced accommodation, only to find that their income has been taken away.

Then there are many developers like myself, who were already struggling to sell their stock last year due to a very prolonged Brexit and are now faced with a potentially de-valued stock and ever-mounting finance costs.

My advice at this point is not to panic just yet, and to communicate with your lender on your current situation.

In the case of an outstanding bridging loan, the main cause of concern for most is the ability to pay the monthly payments back to the bridging company, whilst on a much-reduced income.

Therefore the obvious first step is to speak to the bridging company and try and agree on a reduced monthly payment or ask whether they would consider freezing your payments (albeit, this simply means they will add the amounts to your outstanding balance). Either way, the golden rule at this point is to communicate with them and not to ignore them!

Development finance is a different beast as whilst there are no monthly payments to meet, the outstanding loan will instead have already accumulated many months of interest and will have been calculated to only remain outstanding for a certain period.

However, the advice is the same. Speak to your lender and draw up an action plan together. Alternatively, speak to your broker and ask for advice.

Investor finance is generally more bespoke, but many of us do have investors and the key again is to communicate. Most investors will understand that this crisis is not your fault. However, they will want to know what is happening and what actions you are taking to risk mitigate your project and their investment.

Whatever your situation, stay strong and true to your instincts, but most of all stay safe x??