Monthly Archives

July 2020

ashley-ilsen

Opinion: Why lenders need to look to the past to successfully traverse the future

By Blog, Development Finance, Opinion

One thing I often discuss with colleagues is the use of the term ‘old school’. I like it. I take it as a compliment. I see it as a nod to having learnt and taken heed from past experiences. Most of my colleagues at Magnet Capital, like me, were trained at a previous lender that had been successfully lending money for several decades. Our schooling was in the fundamentals of lending; being measured, being considered and being the tortoise and not the hare. If you can balance this with an unparalleled service and a commitment to lend whether the sun is shining or not, then you have the makings of a very successful lending business.

 

However, over the last decade I’ve closely admired the transition of the specialist finance industry from ‘old school’ to ‘new school’. There have been many changes in how things are done and don’t get me wrong, I’m a huge advocate of innovation and finding new ways of doing things. Innovation is one of the key areas that will determine which business will be successful in the coming years, but perhaps as we move into testing times, with undoubtedly choppy waters ahead, we can navigate our way through as an industry by looking to the past.

 

Lending fundamentals are now going to be more important than ever. Cutting corners and taking unwarranted punts on the asset in question is probably the most common fools’ folly I’ve seen in recent years. As lenders we are all keen to grow our loan books and beat the competition. However, I’ve seen many recent cases where we’ve been asked to push our normal lending parameters to win a deal. Whilst we’re undoubtedly committed to servicing our broker partners, it’s this sense of needing to ‘chase the market’ that can really hurt lenders. Looking back at the 2008 financial crisis, the worst hit finance businesses were the ones that were happy to take on too much risk and cut too many corners when the sun was shining. This is even more true in the development finance sector which is inherently a higher risk style of loan.

 

There’s also the factor of top down pressure which can lead to lending errors. Some lenders have large instances of non-utilisation fees. This coupled with high business overheads can put the lender under pressure to make risk-based decisions that they wouldn’t normally do. Turning down business because it’s perceived as too high risk, or an unflattering return for the business is always a hard decision to make. My fear at the moment is there are still lenders lending money on behalf of private investors or institutions making decisions that aren’t feasible in the current economic climate.

 

One of the only ways to judge the future is by looking to the past. Property markets are intrinsically linked to the economy. The economy as we know moves in cycles, and we’re undoubtedly entering a period of great uncertainty and potentially huge economic difficulty. Unfortunately, even the so-called experts are unable to make accurate predictions. So, as lenders, we need to continue to back our brokers and the consumer. If this means giving up business and taking less risk, then so be it, but as I’ve said before now more than ever is it important to be consistent. There’s a great saying that I learnt during my time living in China and that’s ‘crossing the river by feeling the stones’. This idiom about moving forward whilst being cautious couldn’t be more pertinent to the specialist finance industry today.

ground-rent

FCA Confirms Second Round of Mortgage Payment Holidays During Covid

By Blog, Development Finance

The FCA has confirmed that they will offer a second round of mortgage payment holidays, continuing to help those homeowners who may have been financially implicated during covid-19.

 

Around 1.8 million households used a mortgage payment holiday for three months from the start of thelockdown period, as a way of offsetting any financial uncertainty or loss of income due to unemployment.

 

In total, around 20% of the UK’s population benefitted from the mortgage holiday scheme, giving the average household a saving of £755. The FCA also introduced a similar scheme for other kinds of credit and financial products including personal loans, credit cards, car loans and an interest-free overdraft facility.

 

Residential homeowners and those who offer buy-to-let have until 31st October 2020 to apply through their bank or mortgage provider. The process is usually completely online, streamlined and fast-tracked, offering almost instant approval, with no evidence of financial hardship needed or affordability checks.The Financial Conduct Authority’s interim chief executive, Christopher Woolard said upon issuing a further three-month scheme:

 

christoper-woolard

Christopher Woolard explains that the three-month mortgage holiday is necessary to address the ongoing situation surrounding covid

 

“Clearly, if there are further restrictions that need to be placed for health reasons; if the situation becomes
more complicated in some way, then we’ll have to think about how we adjust to those circumstances.”

 

However, Woolard expressed his belief that half of the people who used the initial mortgage payment
holiday from March to May were now able to pay.

 

“About half of that group are people who perhaps thought they were going to lose a job or have some other kind of impact, and in fact they’re in a position where they could still afford to pay now that that ninety-day period is coming to an end.”

 

Woolard emphasised that while lenders suffered the burden in the short-term, borrowers will feel the effects when it catches up in the longer term through extended mortgages and rolled-up interest.

 

“It’s everyone’s best interest to actually get back towards payment wherever that is possible or even partial payment, but we have to recognise that there’s an ongoing situation here,” he said.

 

Homeowners get access to a three-month mortgage holiday, whereby payments are deferred until a later today or carried onto the end of the mortgage term. Applying or using a mortgage holiday through the Government’s scheme will not impact your credit score or ability to access finance from elsewhere.

 

During the coronavirus period, the Government and FCA have also confirmed that no repossessions by mortgage lenders or banks will take place, giving property owners breathing space if they need it.