LTV breaches should be treated with caution

Hatfield Philips says that enforcing on the basis of an LTV breach should only be considered in exceptional circumstances, including:

- Where a property has lost value through neglect or failure to maintain it to a reasonable standard, which has caused the reduction in value of the property.

- Where the loan is approaching maturity and alternative finance is unavailable.

- Where the LTV breach is beyond what could realistically be expected to recover during the life of the loan and where refinance is unlikely to be available.  

In other words, where the asset itself is beyond recovery or has seen its value fall due to poor management.

Stewart Hotston, director, Hatfield Philips, said:

“We have seen an industry wide drop in the value of commercial properties throughout Europe over the past 3 years due to the economic climate. This has left many borrowers, unintentionally and through no fault of their own, facing potential LTV breaches. This can often be used as a basis for foreclosing a loan.

"However, our view is that property is a long term investment and market volatility is not necessarily the most appropriate basis for enforcement. Therefore, we would approach such situations with a measure of caution and seek to ask deeper questions about value, capability of management and prospects for individual asset improvements.”