The invisible gap in UK lending that South African investors overlook

The hidden risk for South African investors in UK property is the lack of oversight on the lenders who hold their assets. South Africans have long viewed British property as a safe haven due to its currency stability, deep market, and fair courts. However, this oversight gap is coming to light in an unusually public case.

A High Court judge has frozen the sale of two Hilton-branded hotels in London and York after a lender, Cohort Capital, sought to appoint administrators over the company behind the properties. The case illustrates two key issues. Firstly, speed: lenders can enforce their floating charge on a property without any permission, appointing administrators themselves and making the appointment effective upon filing.

This speed preserves value, but there is no independent authority reviewing the appointment. Secondly, cost: challenging this appointment requires a costly and rapid High Court process.

This arrangement has been debated in Britain for decades. In 2002, Parliament replaced an old system with a version that required lenders to select and appoint administrators, with duties owed to all creditors. However, there is no requirement for an independent voice in the selection process or a review at the moment of appointment. The question of whether lenders have a built-in tilt in their choice remains unanswered.

For South African investors, this oversight gap poses a significant risk. The regulator in the UK plans to demand information following the collapse of Market Financial Solutions, a bridging lender that left creditors facing a shortfall and unaccounted funds. The FCA aims to address these oversight concerns, which could impact South African investors with UK property exposure.