August. Quiet. Normally is, isn't it? Many contacts off on holiday, taking time to spend with the family, recharging the batteries.
So should there be concern at the reduced level of activity?
Its a challenging market, no doubt about it. Whether you are a broker or a lender, or indeed a developer, it's been a good while since we have seen such market conditions.
2008/9 anyone? Wasn't actually that long ago but we have a generation in the workforce that have only known very low interest rates. And of course its that financial crisis which saw the birth of the short term lending market as we know it today.
In that period of time quite rightly the short term lending market has become regarded as an excepted mainstream source of finance, not the extreme end of pawnbroking its was once regarded as. "Dodgy" was a word used quite often.
But the current maturing part of the finance industry has not been tested. Lending money - other peoples - is easy. Secured by property? What can go wrong? Well actually quite a lot.
Without regulation (I wouldn't welcome it) setting up as a short term lender is straight forward. A wealthy investors money and a website gets you up and running. Promises of speed and flexibility, a USP of lending on anything, big proc fees and you are open for business.
Hire BDM's, get in the trade press, join the trade association and get your self nominated for one of the many available awards. The next step takes you down the route of institutional funding - won't be long before you can sell your £100m loan book and retire.
Until a pandemic and a cost of living crisis comes along. Build costs rocket, GDV's drop.
Buy to Lets are no longer the easy "out" and refinancing to (yet) another bridger is not an option.
Your loan book stays at a nice high level, not because of new business but because repayments have slowed. Developments are now taking longer (they always did) and the facility you've given won't be enough to see the development completed.
Those finished units won't sell and Buy to Lets don't work. Oh, and that institutional funder? They don't want to be in this market any more. And the funding line with them will shortly be frozen as too many of the loans are past due/in default. Unless of course your business has the cash to repay the funder. No, I thought not.
And just to round of your week, you "best" client - i.e. the one with the largest exposure- asks to drop by the office urgently. You meet him in reception with a number of "suits" or administrators as they are also known as (This actually happened to me!).
Now some may consider the above to be an unflattering take on the industry. But there will be many lenders who have, or will have shortly, experienced some or all of the above.
But.
The short term lending industry has always shown great tenacity and flexibility, and a willingness to adapt. There are some wise (old) heads whose experience will very much come to the fore.
There will be casualties undoubtedly - but a shake out in the industry is long overdue in my opinion. It is over populated. And those left will be stronger for it.
Comments