We are regularly asked to help clients whose banks have asked them (in the nicest possible way but often ‘out of the blue’) to find another lender and move their loan. The client may have done nothing wrong here because, disappointingly, there are a number of reasons why a lender would behave in this way, such as:
- A strategic decision is made that they don’t want to be in a particular market anymore. In this situation they might act immediately to stop any more loans being sanctioned and then look to divest themselves of loans that are already ‘on the books’. A good example of this is ‘Nationwide’ who late last year decided to pull out of commercial property lending without any notice and are now ‘managing out’ their commercial loan portfolio.
- A trigger has been breached which causes the lender ‘regulatory problems’. A good example of this is the age of the borrower – once over 70 a borrower can often find the bank taking a different stance because this affects the risk assessment used by many lenders.
- The loan has become uneconomic for the bank – this is common where lending was done in very competitive times or where regulatory changes have increased the bank’s cost of funds. Often interest rates and fees are fixed and there is no way for the bank to increase its income and it would rather lose the client than lose money.
- A ‘Private Bank’ changes its ‘Customer Criteria’. This might be do with income levels, net worth or the amount of other business that the client does with them.
So what can you do if (or when) it happens to you?
- Check the detail of your Loan Agreement. The bank might have its hands tied by the Terms and Conditions if you not actually in a ‘default’ situation (and default doesn’t always mean you haven’t made the loan repayments on time). Seek advice if necessary.
- Establish what could create a trigger for the bank to have the legal right to ask you to leave. Commonly this involves breaches of ‘covenants’. We are dealing with a case at the moment where a bank clearly wanted to divest itself of a significant loan and used the opportunity to get the property involved revalued at a time (just post-brexit) where the valuation was going to be at an all-time low. This has triggered a ‘loan to value covenant’ and they now have the legal right to force the client to go elsewhere, even though if the valuation was done again now a few months later it would pass the covenant test.
- Anticipate the bank’s next steps. These might involve more regular reviews of the loan, requesting financial information not normally required, insisting that the property is revalued or, most commonly, increasing the interest rate to encourage you to seek an alternative lender for economic reasons.
Talk to a specialist commercial broker, because:
- Brokers who are close to the market will know what strategy the bank is going to adopt. Bankers will talk to brokers and an active broker in the commercial market might be handling several cases involving the same lender (as we are currently with Nationwide). Experienced brokers might even be consulted by lenders to help clients move because of their ability to source the best possible alternative.
- They will also know which type of lenders are ‘in the market’ for taking on such loans. Some lenders don’t like to take out other lenders loans (fearing that there is something wrong with the client or the property that is only obvious to the existing lender) but some lenders with aggressive growth plans might see this as opportunity and be proactive in talking to brokers about referring such business to them.
- If a loan is uneconomic or problematic for one lender it could be difficult to place with another, for the same reasons. A good knowledge of the market will be needed to find the right lender.
- It is a risk for a client to take too much time to sort this out – deadlines can be imposed and it is easy to underestimate how difficult and time-consuming a refinance could be.
- A good broker might be able to help you negotiate with the bank to get an extension or a ‘stay of execution’. This might be very important if deadlines are imposed whereby pricing is increased or the threat of further action is likely.
The message here is don’t assume that you couldn’t be affected by this and if you are, seek advice. At Stirling Partners Finance we have years of experience of supporting clients in this situation.