Managing Credit in Property Management

Effectively managing a collection portfolio of service charge and ground rents in the current economic climate has its challenges. Having joined an expanding property management group last year as credit and collections manager these challenges have been met head on.

The Qdime Group of companies manage a large number of developments across the UK for resident management companies and freeholders, RS Cameron provide managed collection services in-house as well as externally on a business to business basis.

The management of a service charge account is generally a six monthly cycle and accordingly account management is critical to avoid escalating arrears. With the slowdown in the economy the group saw a rise in the number of arrears cases, which was reflected across the industry sector. The solution was to setup a dedicated collection operation designed to meet the requirements of that industry sector.

The method was simple, increase collections rates, minimise the costs and produce a product to market to external clients as well.

Major improvements have been made by the implementation of tighter collection controls and procedures supported by a highly adaptable collection software system from Nexum Software. The software has enabled a higher volume of accounts to be managed by a member of the team and improve the collection rates through automation and integration with the group’s existing management software.

By using integrated email, text, letters and phone calls for customer communication we have been able to build a momentum which has resulted in improved query management across the group. Customers are responding well to a more proactive management of their accounts together with an improved range of payment solutions and communication methods. The economic downturn has increased the number of cases where debtors are experiencing serve financial difficulty; we see a regular flow of Mortgage Company’s taking possession and LPA Receivers being appointed along with personal bankruptcies. As the property market strengthens a new range of challenges will emerge as properties change hands and a new unknown customer enters the cycle.

Andy Goater

RS Cameron Legal Services Ltd

Part of the Qdime Group

Published in Credit Collections & Risk July 2010

RS Cameron Joins Qdime

January 2010 - RS Cameron has now joined Qdime, part of a property management group based in Buckinghamshire. RS Cameron will provide the group with credit managment and recovery services to its expanding property management portfolio as well as servicing business to business clients.

Mortgage arrears and possessions declined in 2009

Mortgage lenders took 10,200 properties into possession in the fourth quarter of 2009 - 13% lower than in the third quarter, and 2% down on the fourth quarter of 2008, according to the Council of Mortgage Lenders (CML). This figure reflects the number of possessions taken by first charge lenders on both home-owner and buy-to-let mortgages.

In 2009 as a whole, this brought the total number of possessions to 46,000. This was lower than the CML's most recent forecast of 48,000, and significantly fewer than the 75,000 forecast at the start of the year, but still 15% higher than the 40,000 in 2008.

In terms of payment difficulties, 188,300 mortgages ended the year with arrears equivalent to at least 2.5% of the outstanding mortgage balance (for example, £2,500 or more arrears on a £100,000 mortgage balance). This was lower than the 195,000 the CML had anticipated, and 3% lower than at the end of the third quarter - but still 3% higher than at the end of 2008.

Within the total number of arrears cases, there is a different picture in terms of what seems to be happening among households with lower levels of arrears (where the numbers are improving), and higher levels of arrears (where the numbers are little changed). This suggests that at present some borrowers facing only modest difficulties are being helped by low interest rates to get back out of trouble, whereas those with more severe problems may be stabilising their arrears but not recovering from them, and lender forbearance is likely to be a significant factor keeping them in their homes.

Looking ahead, the CML's current 2010 forecast of 205,000 arrears cases and 53,000 properties taken into possession may be a little pessimistic, given that unemployment is faring better than expected so far, and that low interest rates, lenders' arrears management policies, and government assistance schemes are working well to support many borrowers through temporary difficulties. However, the economic and political outlook remains uncertain, and interest rates may rise sooner than we expect if inflationary pressures build up. It would be premature to assume that housing market recovery will necessarily follow a smooth course.

Commenting on the current level of mortgage arrears, CML director general Michael Coogan said:

"The fact that mortgage arrears and possessions did not rise as much as we feared in 2009 is testament to the effect of low interest rates, and a great deal of concerted effort by lenders, government and the advice sector to help borrowers to address financial difficulties when they occur.

"We are not out of the woods yet - 2010 will still be a challenging year for many borrowers, and some households will inevitably find their finances being squeezed if and when interest rates do eventually rise. But borrowers should feel reassured that lenders want to help them keep their homes wherever possible. The vast majority of people who get into arrears manage to keep their homes, and will do so even if interest rates rise. Seeking advice as soon as financial problems occur will help to minimise the risk of the situation getting out of control."

(Source - CML Press Release)

Buy to Let Lending

New buy-to-let lending increased for the second consecutive quarter in the last three months of 2009, according to figures released from the Council of Mortgage Lenders (CML) today.

There were 25,800 new loans advanced in quarter four, up from 23,700 in the third quarter but down from 38,000 in the fourth quarter of 2008. The 2009 growth is from a very low base after a consistent decline through seven consecutive quarters. Gross advances totalled £2.4 billion in the fourth quarter of last year, up £300 million from the third quarter but down £1.6 billion from the fourth quarter of 2008. Volumes remain comparatively low, both in absolute terms and as a percentage of overall lending.

For 2009 as a whole, there were 93,500 buy-to-let loans advanced. This is 58% down on the number advanced in 2008 (222,700) and is the lowest annual volume since 2001. Buy-to-let gross lending was £8.5 billion, down from £27.2 billion in 2008. Buy-to-let lending represented only 5.9% of all lending in 2009 (10.7% in 2008), but the total value of outstanding buy-to-let loans still represented around 11.8% of the mortgage market despite the recent shrinkage in new business.

All types of buy-to-let lending increased in the last three months of 2009. As with the mainstream mortgage market though, loans for house purchase continued to be advanced at about twice the rate of loans for remortgage with 62% of new buy-to-let loans being for house purchase. For 2009 as a whole, 60% of buy-to-let lending was for house purchase, compared to just 46% in 2008, demonstrating an ongoing demand to increase residential investment portfolios if finance is available. This is relevant in the context of the Treasury's new consultation seeking to encourage future individual and institutional investment in the UK private rented sector (see notes to editors).

The very low interest rate environment continues to benefit buy-to-let borrowers as the majority of mortgages are on an interest-only basis. This has a particular benefit for those in arrears, allowing many to recover their situation if they suffer short term voids or non payment of rent by tenants. The number of landlords with arrears of more than 1.5% of the balance stayed the same in the fourth quarter at 20,700, but is 37% down from the 32,900 seen in the same period the year before.

The number of buy-to-let properties taken into possession in the fourth quarter fell by 25% from quarter three but rose 9% from quarter four 2008. 1,200 properties – 0.10% of the total buy-to-let book – were taken into possession compared to 1,600 in quarter three and 1,100 in quarter four 2008. Overall in 2009, there were 5,700 possessions (0.46% of the total book). This is similar to the 0.42% annual possession rate for the wider mortgage market.

Cases where a Receiver of Rent was newly appointed also dropped in the fourth quarter. These are similar in many ways to a lender taking possession of a mortgaged property as the landlord is removed, but the receiver collects rent from tenants so there is ongoing occupation of the property, and no need for court action, and passes it to the lender to apply to the mortgage payments. They accounted for a further 0.12% of buy-to-let mortgages, down from 0.14% in quarter three. Overall there were 8,600 new appointments of receivers in 2009, accounting for 0.70 of all buy-to-let mortgages.

Commenting on this latest buy-to-let data, the CML’s director general Michael Coogan said:

"The figures show that the buy-to-let market continued to improve, albeit slowly, throughout 2009, and we are encouraged by this recovery. The new business market remains well below previous levels though, and below the level of activity which is needed to enhance a vibrant private rental sector in the UK. We are concerned that future, wrongly directed, regulation may actually prevent buy-to-let playing its vital role in providing good quality homes and wider housing choices for people who cannot afford home ownership or do not qualify for social housing.

“Trends in arrears and possession, and the suggestion that there is potential for consumer detriment to arise from buy-to-let mortgages, are relevant to the current consultation by the Treasury on whether the FSA should be given power to regulate these transactions, and we will be responding on this shortly.”

(Source - CML Press Release)

Business debt decreases almost 28% year on year

With news that the UK is officially out of recession, the latest figures on commercial debt from Lovetts, one of the UK’s leading debt recovery law firms, reveal a fall of 28% in the value of commercial debt being experienced by its customers in Q4 2009 compared to Q4 2008.

While the actual number of individual debts chased for payment through a Letter Before Action (LBA) in Quarter 4 2009 compared to the same quarter in 2008 fell marginally (-2.54%), the total value these debts amount to dropped by 27.58% year on year. (LBAs are used to secure payment, or to obtain a response from a customer before the commencement of a legal claim). Furthermore, LBAs are proving effective in obtaining payment as the number of debts going on to the legal claim stage has dropped by just over 8% according to Lovetts’ figures.

Businesses have also become more lenient in chasing outstanding payments. The amount of time businesses are waiting before instructing an LBA to be issued has increased by around 16 days compared to the same period in 2008.

Charles Wilson, Chairman and Managing Director of Lovetts says, “The dramatic year on year decrease in the value of debts we are chasing on behalf of our clients just goes to show how hard the recession was being felt by businesses at the end of 2008. It was definitely a case of ‘can’t pay, won’t pay’ as businesses were panicked into holding onto their cash for as long as possible, therefore putting off paying debts, while also chasing up debts owed to them much sooner. Of course the additional factor in this drop could be the simple fact that businesses during 2009 weren’t invoicing to the same monetary levels as 2008 and their debt has lowered as a consequence.

“Indeed it would appear businesses have become more relaxed about their debt levels with the average time from invoice to LBA increasing by over two weeks. Clearly maintaining good customer relationships is vital in this climate and that will have a huge part to play in how much rope businesses are willing to give their clients before they get serious with the threat of legal action.

“The fact is lower debt is a better basis on which to build a business coming out of recession, but we’re not out of the woods yet. It is therefore still extremely important for businesses to act swiftly on outstanding debt.” concludes Charles Wilson.

(Source - Lovetts Press Release)

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