Risk is something that is always present in all of our lives – you take a risk every time you cross the road, for example. But, at a time of a global pandemic, we are all much more acutely aware of risk.
For lenders, the same is true of credit risk. In an environment of uncertainty, lenders are more watchful regarding the risk they take on and tend to be more cautious, and this is before you start to consider the dramatic impact of the pandemic on business and personal finances.
Mainstream banks are built to deliver lending at high volumes, with largely automated systems and process. However, in an environment of heightened risk this approach can lack the flexibility required to assist borrowers with increasingly complex needs.
In recent years we have seen a rise in self-employed workers, and people with irregular income or multiple income streams. There has been an increase in later life borrowers for whom traditional maximum age criteria is no longer appropriate, and there is a growing number of people with poor credit history and increasing debt. Set against the current backdrop, it can be increasingly difficult for customers in these segments to secure borrowing as, although they may not necessarily consider themselves to be high risk, they often fall outside the mainstream lending criteria.
So, what does this mean for the future of the lending landscape?
Fortunately, there continues to be a growing specialist lending market, with lenders that are able to take a diverse and considered approach to risk to deliver lending to customers who fall outside of the requirements of the mainstream. Throughout Covid-19, lenders in this part of the market have remained proactive, flexible and willing to find solutions for brokers and their clients. Much like the global financial crash, when many lenders were able to take market share and develop a loyal client base, these lenders have continued to work with consistency and clarity throughout a very difficult period.
One thing that is certain is that access to capital is hugely important for people now and will continue to be so as we move into next year. There continues to be significant demand for finance on HMOs and student lets, portfolio lending and expat lending. Yet, with so much on their plates currently, the rate at which mainstream lenders are entering niche markets such as bridging is relatively slow. So, there are plenty of unsaturated markets where challengers can grow, and we are still seeing expansion of existing lenders into new sectors and the launch of new entrants. This creates a more competitive market and eventually better product choice, increased flexibility, and more favourable terms – which are all good news for borrowers.
One of the challenges to the growth of the specialist market is that very few of the lenders in this sector are household names and so there is a job to be done in raising awareness of the options and opportunities, and also instilling confidence amongst customers.
I spend a lot of my time raising awareness amongst my network of developers, investors, and property professionals about the benefits of turning to specialist options. At Sirius Property Finance, we see our role as advisors as pivotal in this growth of the specialist market. We work in trusted relationships with our clients and so our recommendations can give them greater confidence to utilise other products aside from the offerings of the big household names. This is not to say that we don’t place deals with the high street banks – for more straight-forward deals they certainly still have their place, but there are alternative options when cases are more interesting.
We take great pride in helping customers to realise their property goals and achieve the seemingly unachievable – and are often able to place borrowers with lenders where they had lost hope after having had their applications refused by several others before. Often the key to a successful application is ensuring that a client has a robust and reasonable exit strategy and so we work hard to get under the skin of a deal, which can often require a more artistic approach to structuring and may include multiple lenders or mezzanine finance to provide a bespoke package that is best suited to the client’s needs.
Relationships are key in the specialist sector. This is human element is arguably lacking in the more automated mainstream lending world, but in a market where lenders have the capacity to make a judgement call on an application, good lines of communication and trust are vital. As Head of Strategic Partnerships for Sirius, I see daily the trust imparted between professional parties along the entire chain of a property transaction to get deals across the line.
The specialist sector was growing before Covid, and the disruption caused by the pandemic is likely to serve as a catalyst for further growth. This is good news for customers who have previously been excluded from the mortgage market as it leads to a more inclusive environment. Responsible lending remains crucial to the sustainable growth of the market and expert debt advisors, with strong experience and relationships in the sector are the key to ensuring that customers are placed with the right lending solutions.
AUTHOR: Kimberley Gates, Head of Strategic Partnerships