What is NARA, and what are the benefits of membership?
Banks often secure their loans with what’s known as a fixed charge, one that’s fixed on a known asset or group or assets. Fixed charge receivers are people appointed to take charge of that asset if the loan is defaulted on. When the asset is real property, the receivers tend to be mostly surveyors, as well as insolvency practitioners and solicitors. NARA was formed as a trade association to introduce written standards, provide training and professional development, and bring about regulation for fixed charge receivers - educating surveyors in the world of insolvency, and similarly educating insolvency practitioners in the world of real property.
What impact has the changing economy had in relation to the Insolvency and Receivership industry over the recent past? Both in terms of moving from a recession and beyond?
The recession had a significant impact on our members - although even when the economy does well our members are busy, there are always problems with borrowings. There was a lot of work in the residential buy to let market for our members, yet today we’re also seeing a 40% drop in the buy to let mortgage application rate as that sector slows down following legislation changes.
Looking forward, in the commercial property sector, there’s a growing north/south divide, and many banks are potentially overexposed, especially at the lower end of the market. The banks have also been affected by increased affordability controls on residential mortgage lending, and the market has seen increasing competition from peer to peer lending and challenger banks.
What effect is the recent change in interest rates and other market influences having on insolvency practitioners?
2.5 million residential mortgage holders have never seen an interest rate rise, which is a frightening statistic. Everybody believes that house prices and commercial investments always go up. I can assure you they don’t. Not for me to speculate but, if we have wages rising at a very low rate and we have inflation rising at a much higher rate, that erodes people’s ability to keep paying more and more for residential property. There might be an interesting storm in the future: steady interest rate rises and stagnating rents will heavily affect the loan to value ratio in residential and commercial property, especially outside of the UK’s property hotspots, which may then put downward pressure on values.
There has also been a household spending binge over the last few years, driven by low interest rates. But of course, once interest rates rise and nervousness enters the economy, and commercial property is starting to empty out, that’s when the commercial loans really get into difficulty because their use is driven by the income stream.
How is Brexit affecting the industry?
There’s a lot of uncertainty. But the UK is still seen as a safe haven for investment and particularly so for property. Look at all the property that’s been bought up in London by sovereign wealth and foreign investors, similarly because it is seen as a safe haven. There is some risk of relocation to other European cities by certain businesses, but I think that is discounted by the long-established prime position of London. I think London is far too well established, attractive and cosmopolitan that the loss to other European cities is likely to be minor. Don’t forget that the current value of sterling makes the UK a very attractive place to be for the rest of the World – especially Europe. That is if we don't suddenly regress to 1970's chaos via a hard left turn politically.
What are the biggest challenges for insolvency practitioners?
When it comes to working with lenders, there’s often a lack of understanding of property dynamics so the skill set to identify the early signs of distress in a loan are no longer in place. Practitioners’ advice is not always taken quite early enough and there’s not enough monitoring of the underlying asset that forms part of the loan. With complex commercial properties with multiple tenants, sometimes it’s worth replacing the entire management team as quickly as possible, just to protect the asset.
How do practitioners work with security firms at the moment, and what would your advice be for this area?
Once the fixed charge receiver is appointed, they effectively become the management team for that building and their liabilities are personal – no hiding behind a corporate identity. They have obligations to secure the asset, as quickly as possible. So practitioners need to be able to pick up a phone and say: “I’ve taken this industrial unit and I need 24h guarding; can you do that for me? And I need them on the site tonight.” They need an immediate response, so they should build up an on-going relationship with a reliable security firm to get that peace of mind.
When it comes to levels of security on a property, a fixed charge receiver will normally make a cost versus risk decision, even though they may not have seen the property before that stage.. It helps if their trusted security company can assess risk on their behalf and take care of installing additional security measures if needed. Often, what’s specified by insurance requirements is just the bare minimum, and may be a false economy in the long run.
Big thanks to Julian for answering all of our questions, visit http://www.nara.org.uk/ to find out more about his organisation and the services offered.
At Vigilance, we offer, fast and efficient services when working with fixed charge receivers. Our Security Fundamentals offering analyses your needs and works to supply specialist personnel or hardware as quickly and effectively as possible. To find out more about bespoke packages, get in contact now.
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