Friday Highlight 

What are the prospects for the short-term lending sector?

What are the prospects for the short-term lending sector?

It is worth reflecting on just how far the short-term lending industry has come, not just in the past 12 months, but in the 10 years since the global financial crisis of 2007 to 2008.  

Back in 2008, the world was a very different place.

As the credit crunch tightened its grip early in the year, interest rates were cut from what now seems like a positively stratospheric 5.5 per cent to 5.25 per cent. 

Meanwhile the UK specialist lending sector was dominated by banks, be they high street lenders or American banks, funded largely by the securitisation model.

When the US housing bubble burst, those of us working in the industry remember very clearly just how quickly funding lines evaporated and US banks disappeared back across the Atlantic.

A large void was left. But into this space - slowly at first but then with ever greater momentum - grew a strong and vibrant specialist lending sector, underpinned by an unprecedented diversity of funding sources.

New lenders proved that they could thrive in any macroeconomic environment, many being founded and forged during a period of huge economic uncertainty.

This new breed of lender played a hugely significant role in financing the inherent dynamism of our property investors and SMEs and, in doing so, helped to ensure the UK bounced back from the financial crisis more strongly than virtually any other nation.

Arguably the worst recession in living memory, a crisis that was actually housing market-led saw UK house prices fall 13.7 per cent between 2007 and 2009. But this fall was recovered in a little over three years.

Maturity

Today, some of the first new entrants have grown and become banks themselves. They have been joined by challenger banks and peer-to-peer lenders and, in recent months, by a further surge of new lenders as family offices and private investors have widened their investment strategies in the face of volatile equity and bond markets.

This wave of liquidity and increased competition and driven rates down to levels that were unthinkable just three or four years ago while loan-to-value limits have increased, despite the backdrop of a subdued and even, in pockets, declining property market.

Total lending of more than £4bn in 2018 underlined the increasing maturity of the short-term lending market.

On the face of it these trends look like great news for borrowers and, in many instances, they are. 

But despite hugely competitive borrowing rates and record employment levels the wider UK property market has finally begun to reflect concerns over the shambolic handling of Brexit as March 29 draws ever closer.

According to the Halifax, December saw annual house price growth slow to its weakest pace since February 2013 and a monthly drop of 0.7 per cent.

Faced with massive uncertainty around the eventual outcome of Brexit, it is hardly surprising that UK homeowners are increasingly sitting on their hands and waiting for the storm to pass.