Mark Jones, Director at our Affinity Partner Omega has prepared a brief overview of the lending market and how things have changed during this pandemic.
Whilst it’s had its challenges and obstacles, the High Street has remained a stable and reliable source of finance to support businesses of all shapes and sizes, including sometimes offering the highest debt quantum. This notion however has certainly been challenged by the pandemic.
Financial assistance has been offered and largely delivered through CBILS and BBLS for business, access for Commercial Mortgages, refinancing existing debt, buying new premises has become far more restricted, even accessing CBILS support has had its difficulties.
A snapshot of the market today, has seen two high-street lenders pull away from the market for new to bank customers altogether, one since returning but with a far more restricted policy, the other suggesting a return to market imminently albeit without comment on any amendments to criteria.
Those high-street lenders that have remained open to business have had to battle with restricted resources attempting to service the huge demand for government support schemes, whilst amending their risk appetite in a fast moving pandemic hit market, and accommodating the same consequences of lockdown that we’ve all been subject to. Please do not read that as sympathy but is an acknowledgement of the obstacles faced.
There remain some success stories, with high LTVs achieved on market leading pricing, some turnaround times even deemed within estimated SLA’s, however these remain the few rather than the many. The result of the aforementioned challenges have led to miscommunication and ever changing sands.
I recently did an interview with a lender, when asked what we need most from our lending partners, my response was “utter honesty on debt and terms available, and importantly likely turnaround times”. I understand the issue faced by many relationship managers and front line staff has been changes in appetite behind the scenes not necessarily being communicated or clearly relayed, leading to additional challenges in gaining the terms initially sought or at times even obtaining a sanction.
As you might expect, specifically focusing on the commercial market – this has however opened the doors to other lenders who remained open for business throughout lockdown, although this may be fewer than you would expect. Some able to deliver commercial terms within 8-week completions and offer interest only options for commercial investment. Others taking a view on outside income or mixed investment and occupied units, whilst ensuring we have a full and thorough understanding on the impact of COVID on the business itself or respective covenant strength.
On being challenged by a client recently on why pricing had increased, the response was more that the lender had changed rather than just the pricing applied. One challenge facing the market today is the shift to (possibly ongoing) criteria. Communicating the realities to clients and partners alike, and obtaining their understanding and buy-in to these realities will be the challenge ahead of us. Whether that be restricted LTVs, turnaround times, reduced lender numbers currently active in that specific space, or even additional requirements from lenders in respect of business activities and financial performance both during and beyond COVID.
That said, its not all negative! Last month registered enquires were 150% of that received in the same month last year, this was reflected across the summer months and into the start of September. We have also seen our team working harder for clients which has included considering any alternative (often creative) methods of raising funds to mitigate or overcome shortfalls caused by current restricted market conditions.
We’re also seeing these ‘alternative lenders’ able to further cement their position in the market, further expand their lending criteria and in some cases reduce pricing as they further expand.
We have also experienced a vast increase in the volume of development and refurbishment enquiries, and with it, the number of completed cases in this sector, both for experienced individuals and those who are undertaking their very first project. Lenders have remained positive throughout and keen to support development projects, where LTVs did reduce some lenders are starting to revert back to pre-pandemic loan to cost and loan to gross value ratios.
Remaining fully aware of lending market restrictions, or increases in ratios, changing appetite and consistency of message (Credit signing off on the terms discussed at the outset) has been key to our service through the last few months and will remain paramount to the continued delivery of that expert service as we move forward.
One area we will need to remain fully focused on is a holistic understanding as to how a client may have managed their business, portfolio or similar through the pandemic. One hope I do have from lenders for the future, specifically the immediate months ahead of us, being no negative stigma attached to a client benefiting from or requiring Interest Only periods, government support, potentially experiencing voids or similar through no fault of their own, in scenarios impacted directly from the pandemic itself.
I guess we’ll see.
Director Omega Group