More than 40 per cent of bridging lenders are concerned that a continued extension of the repossession ban is going to reduce their capacity to carry out new lending in the future, according to a survey by the Association of Short Term Lenders (ASTL).
Experts say the enforcement has already started to take its toll on bridging.
Jonathan Newman, senior partner at Brightstone Law, said the current ban had already created “disproportionate funding problem for short-term lenders”.
According to guidance from the regulator, the repossession of homes will not be allowed before 31 October to help homeowners who have been financially impacted by the coronavirus pandemic.
But seven in ten bridging lenders said they were concerned about the capacity of the courts to deal with the backlog of repossession claims when the government ban is lifted.
Before Covid-19, the lowest amount of cases the courts typically dealt with, including High Court claims and all possession case types, was around 38,000, figures from HM Courts & Tribunals Service show.
This decreased to 12,250 during the week ending 5 April, and then fell again to 6,656 the following week.
The lowest number of receipts was 4,626, during the week ending 10 May.
Newman, senior partner at Brightstone Law, said: “It’s no wonder that bridging lenders are concerned about the capacity of the courts to cope.
“A system that is used to processing more than 38,000 cases each week has dropped to fewer than 5,000 during some weeks, which indicates the scale of the logjam that is waiting to hit the courts system.”
Newman said this backlog, combined with the reduced capacity of the courts as they implement social distancing procedures means delays will only get worse.
“It’s not that bridging lenders are hungry to commence enforcement action, but the combination of payment deferrals and the government moratorium has created a disproportionate funding problem for short-term lenders and it’s important for them to exercise their rights to begin a process of recovery.
“Kicking the can down the road is ultimately worse for existing customers who may see their equity eroded, and potential new customers who may have their access to borrowing limited as a result.”
ASTL chief executive Vic Jannels said the trade body has made progress with its talks with the Treasury over the impact of the ban.
“We think it is important that we work together on an effective and diverse financial response to the current situation so that we are able to follow a balanced approach that best supports the UK’s economic recovery,” said Jannels.
Samantha Partington is a freelance trade and consumer journalist writing about property and personal finance. Previously she worked worked for the Daily Mail and Property Week. She is the former deputy editor of Mortgage Solutions and editor of Specialist Lending Solutions.
Before becoming a journalist, Samantha worked as a mortgage broker and latterly for a mortgage, bridging and secured loan lender. Samantha is CeMAP qualified. Follow her on Twitter @SamJPartington1.