Banks may sell bad debt properties

The financial crisis has led banks to take a longer view over the future of commercial properties where loan repayments have defaulted and not immediately put them in receivership, but this may be about to change, according to property consultant King Sturge.

A combination of factors, including banks recognising they had to take some responsibility for the property market crash and that quick sales to recover funds have been impossible because of the credit crunch, has led banks to restructure bad debts rather than recover them, said Simon Cullimore, a fixed-charge property receiver in the Leeds office.

In previous property market crashes, banks placed “bad debt” properties in receivership quickly to take control of assets and recover as much as they could as fast as possible in what were often regarded as fire sales.

Mr Cullimore said: “There is an expectation that, as the market settles down and potentially strengthens during the next 12 months, more properties will be placed in receivership because the debt position will be crystalised and a combination of value properties and economic recovery will bring more buyers into the market, leading the banks to see their exit routes and act accordingly.

“There is also the potential that, if the Treasury is forced to increase interest rates as some commentators forecast, more loans will be ‘underwater’ and the banks will have little choice but to appoint receivers.”