Marijana No Comments

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.

Consequently, we have reached the point where a slowing property market, combined with intense competition between established specialist lenders to maintain market share and newer entrants to gain some has inevitably seen some lenders, both old and new, pushing both rates and loan-to-values to unsustainable levels in pursuit of new business.

These same lenders have often paid inadequate attention to their clients’ exit strategies.

The assumption that rising property prices would always ensure an exit by refinance have proved to be deeply flawed and default rates for these lenders have spiralled.

Against this backdrop of rising defaults and growing losses, some established lenders have lost their funding and have begun to exit the market.

Meanwhile, some newer lenders have based their underwriting strategies on algorithms and automated procedures.

This one-size-fits-all mentality simply does not work in a sector where deals are often extremely complex, requiring the sort of ‘outside of the box’ thinking and tailored solutions that only highly experienced underwriters can provide.

Rigid product offerings do not work well in the bridging space.

Holistic approach

Finally, compounding the above, due to the rapid growth of the sector, it is now often the case that relatively junior underwriters and staff are being offered positions and levels of responsibility for which they are too inexperienced and ill-equipped to cope.

Immediate contact with senior personnel is often the key to a successful outcome, but this can be impossible with some newer lenders, who just do not have the in-depth knowledge within their teams.

Now, more than ever, advisers need to take a more holistic approach when determining the lenders they deal with.

A simplistic focus on lower rates, coming as they often do in rigid, less flexible product offerings, can be a mistake.

Frankly, there is much more to making a good choice than price, particularly when the average duration of bridging loans is counted in months rather than years.

Rate and LTV should always be balanced against a multitude of other factors, including an ability to offer both conventional and unconventional solutions, access to senior decision-makers from the start of the application process until the day the loan completes, autonomy to make decisions in-house, certainty of funding and a consistent and, above all, decisive service.

Fortunately, there are many lenders with highly experienced teams and strong and diverse funding lines which were formed and have been forged in the last recession.

It is these lenders that will underpin the specialist market in 2019 and that stand ready to meet the funding needs of borrowers, be they opportunistic investors in a buyers’ market or the entrepreneurial SMEs that are the backbone of the economy.

The specialist lending market is well positioned to end 2019 stronger, leaner and fitter than ever before. But now, more than ever, it is important to make sure you are working with the right lending partners.

By Brian West, private client manager at Conrad Capital

Source: FT Adviser

Marijana No Comments

Is the short-term lending market robust enough to deal with the fallout from Brexit?

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.

Source: Mortgage Introducer

Marijana No Comments

65% of brokers would take on short-term finance clients because of the ability to diversify

Some 65% of brokers said the key reason they would take on short-term finance clients was the ability to diversify, followed by 60% it was because of the increased demand for bridging cases, InterBay Commercial has found.

Furthermore 70% said that the demand for bridging has risen in the last year and only 8% said they thought demand for bridging loans had fallen.

When asked about the reasons to take on a bridging application, 65% pointed to the fact that bridging cases often involve higher fees and therefore presented an opportunity to earn additional income.

Darrell Walker, head of sales, InterBay Commercial, said: “With the continuing political uncertainty around Brexit, activity in the property market is sluggish and impacting on sales.

“Brokers therefore need to be able to provide their clients, particularly investors, with fast and flexible options to finance their next project so they can make the most of higher yielding alternatives, such as HMOs.

“As the demand increases for specialist finance products, brokers should make sure they are informed. This requires more education around the options lenders offer and the speed at which the solution can be secured.

“But most important is the relationship that has been built with the BDM who is best placed to inform brokers on product availability and criteria guidelines as well as offering flexible tailored advice.”

In addition 12 times as many brokers expect demand for bridging to grow rather than shrink (62% vs 5%). Of those who thought it would grow, most paired the demand with rising house prices (42%), closely followed by growing demand from buy-to-let investors (40%).

With this expected growth within the specialist lending market, there is an increasing need for brokers to be able to specialise and be aware of the lending options available to their clients.

Brokers are not the only ones adapting to the growth in demand for bridging. 67.5% of brokers said that lenders have increased the variety of bridging products that they have on offer.

Source: Mortgage Introducer

Marijana No Comments

Rise of 115% in numbers applying for a short-term loan to pay their mortgage of rent

THE number of people in the UK turning to a short-term loan to cover their rent or mortgage has more than doubled, according to new statistics.

In the past two years the number of people applying for short-term loan who said they needed help paying for their accommodation increased by 115 per cent.

New data from FCA authorised credit broker CashLady found the total number of people applying for loans has also nearly doubled since 2015, with a 93 per cent increase in volume.

As well as the number of loan applications rising, the average loan amount requested by those struggling in the UK has increased by 45 per cent from £224 in 2015 to £325 this year. The statistics from CashLady come just weeks after the Financial Conduct Authority revealed that one in six people in the UK (17 per cent) would struggle to pay their mortgage or rent if it increased by just £50.

Earlier this month, the Bank of England’s Monetary Policy Committee announced it would increase interest rates for the first time in ten years — from 0.25 per cent to 0.5 per cent.

Figures also revealed that NHS workers still top the list of employees who most require emergency financial help.

They are followed by supermarket staff from Tesco, Asda and Sainsbury’s. Struggling members of the armed forces also make up the top five workforces requesting loans.

Managing director of CashLady, Chris Hackett, said being able to keep a roof over your head is “a basic human right.”

He added: “These figures, uncomfortable as they are, lay bare the state of the nation as people are struggling to cover their rent or mortgage payments.

“Wages for some of our most valuable members of society are just not high enough for them to manage basic living costs and they are regularly being forced to seek out short-term financial help.

“Housing expenditure is the largest monthly expense for our customers and they should be able to comfortably afford this before turning to emergency finance.

“We act as a broker for short term credit to help our customers find financial assistance from FCA authorised credit providers instead of seeking out illegal or potentially dangerous alternatives.”

The CashLady figures have been released after Chancellor Philip Hammond was accused of leaving ‘ordinary’ Brits out of yesterday’s budget, by failing to mention a wage boost for public sector workers, despite claiming to “support our key public services.”

Source: The National

Marijana No Comments

Are Short-Term Loans Cheaper Than Overdraft Fees?

There’s been a lot of news recently about overdraft fees — the fees charged by banks to their account holders after an account dips below a £0 balance, meaning the account holder has a loan balance, even if small, from the bank.

Earlier this year, The Telegraph published its “worst offender” index, listing banks that charged the highest overdraft fees for their customers.

Santander was one of the top offenders, with an unarranged overdraft fee of £6 per day capped at £95 per month. On arranged overdrafts of up to £2,000, Santander charged daily fees of one pound per day; rising to £3 per day for overdrafts of £3,000 and above.

Other banks were similarly expensive. Borrowing money on overdraft from Halifax could result in charges of up to £3 per day, according to the July 2017 article. Unarranged overdrafts incurred a whopping £5 per day fee, capped at a maximum of £100 in overdraft fees per month.

RBS and NatWest also charged heavy unarranged overdraft fees, with an £8 per day fee limited to a total of £80 per month.

With as much as £100 in monthly overdraft fees from many bank accounts, it’s been suggested that borrowing money through short-term loans could be a more affordable option for people in need of quick access to cash.

The numbers seem to agree. An August 2017 article in The Guardian calculated that many of the most widely used bank accounts in the UK charged APR rates of up to 52%, making them more expensive — in certain cases, depending on borrowing habits — than payday loans.

Banks, to their credit, appear to be changing their overdraft fee structures in an attempt to make borrowing less expensive for customers. However, many have admitted that as much as 10% of account holders could end up paying more for overdrafts under the new fees.

Despite public warnings about short-term loans, it turns out that overdrafts — even if used rarely and responsibly — could be a far bigger cost for many British bank account holders.

For example, a loan of £300 over 3 months from a short-term loan provider such as Mr Lender, results in a total repayable of £444.00 (£300 capital and £144.00 interest*) at an interest rate of 0.8% per day on outstanding capital.

The same amount borrowed via an unarranged overdraft could result in £300 in fees through a high street bank using many of the fee structures listed above.

Public perception of borrowing money — and the true costs of borrowing money — isn’t always in sync with financial reality. For years, borrowing from the bank has been viewed as a safe, cheap way to access finance; borrowing from a short-term lender has been viewed as the opposite.

The reality, however, is that the best loan for your personal circumstances may not come from the source that you first think of. Study and compare interest rates and fees and you could find that borrowing money via short-term loans is more cost effective than using your bank overdraft.

Source: News Anyway