Is the short-term lending market robust enough to deal with the fallout from Brexit?
What a mess! Most people provisioned for uncertainty, not many for huge internal political chaos, but that’s where we are.
Theresa May and Jose Mourinho have more than you think in common. Both have risen to the top, both have earned and deserve respect, both have found it too difficult to deal within and too difficult to assert themselves against those with whom they must now compete. Both it would seem, have taken on impossible tasks.
So as at this week, we still don’t know whether Brexit is happening and if it is, whether it shall be soft, hard or something in between.
Most will acknowledge the outcome for the country as a whole is uncertain. The majority believe, in the short-term at least, there is likely to be disadvantageous economic consequences. I do not disagree with that view.
But that is a broad assessment. What about the short-term lending space in particular?
I believe short-term lending is better placed than most to best withstand the negative impact of Brexit, whatever its form. I say this for the following reasons:
* The short-term lending industry is one which is mostly insular. It deals in the funding of UK property mostly by UK lenders, mostly with UK funding lines. Unlike automotive manufacturers, lenders do not cross borders to acquire carburettors from Italy or exhaust systems from Germany. For lenders and borrowers, there should be no major across the board disruption to transacting business in the immediate term.
* It is true this industry is inextricably linked to the property market. Mark Carney has talked about a 30% crash in property prices. He may be right. But is that forecast, which was wrapped in caveats and predicated on a number of events, really likely? Data captured at Brightstone Law suggests that the value of property began to drop from the date of the referendum result. The research suggests properties valued in, or around 2016, selling in today’s market are some 20 to 25% off pre-Brexit valuation. So it is plausible, that the market has already factored in some, if not all of the Brexit impact.
* This country enjoys a special advantage which is not often highlighted. The UK has the most developed, sophisticated infrastructure and systems; a reliable Land Registry; well-regulated financial services; and a legal system which is fair, transparent and impartial. That makes investing money into property in this country still appealing in safety terms, even if the transactional cost is higher than previously. With relatively cheap property prices the UK will continue to offer international buyers a sound low risk investment opportunity.
* With Brexit on the horizon and all issues flagged and signposted for some time, despite the weakening property market, short-term lending has expanded post referendum. Annual bridging completions have risen to £3.98bn, according to the latest figures from the Association of Short Term Lenders (ASTL). For the year ended 30 September 2018 annual bridging completions were up 21.2%, compared with the same period last year.
* Lessons learned from the last banking crisis will undoubtedly cause the banks and institutions to proceed with even more caution than presently – a current position where liquidity has never fully recovered and the processes put in place to avoid a repetition of 2008, continue to handcuff lending that isn’t vanilla. That toughening and increased caution may create space in other areas for specialist finance providers.
So we are all in for a rocky road. Exits will become trickier and an adverse economic climate will impact on employment and serviceability. But if there is one part of the financial services sector which is better placed to cope – it may just be this one – a sector which has shown itself in the past, able to react quickly and commercially. I certainly hope so.