Three Ways COVID-19 Has Forever Changed the Lending Market
The COVID-19 pandemic has been an unprecedented shock to the financial services sector. But what lasting impact will it have on lenders and borrowers?
Tiba Raja, Director at Market Financial Solutions, offers Finance Monthly her insight into the pandemic’s impact on the lending market.
Economists and politicians are currently grappling with the question of how to bring about a post-pandemic economic recovery for the UK. So far, the government has introduced policies to stimulate investment, productivity and economic growth to this end. While these reforms have delivered measured success, more works need to be done. Businesses need to take a step back and understand how the pandemic has affected their respective industries.
This is particularly important when it comes to the lending market. Any attempt to support the economic recovery of the UK must include measures that support property investment. For this reason, I have listed below what I see as the three main ways COVID-19 has affected the lending market.
Speed is of the essence
One key trend is the speed in which borrowers are now needing their loans deployed to ensure they can complete on a property transaction. Recent government intervention, namely the stamp duty land tax (SDLT) holiday, has resulted in increasing competition and rising house prices. The first Nationwide house price index (HPI) following this policy’s introduction showed an annual 1.5% rise in general house prices, in contrast to the 0.1% decline the month prior.
When coupled with the fact that the SDLT holiday ends on 31 March, 2021, borrowers are keen to act quickly to reduce their chances of losing out on potential property opportunities. What’s more, there is likely to be a surge in activity in the final month that the SDLT holiday is in place. This means that lenders have to act quickly and ensure they have access to in-house credit so that loans can be deployed as soon as is viably possible.
When coupled with the fact that the SDLT holiday ends on 31 March, 2021, borrowers are keen to act quickly to reduce their chances of losing out on potential property opportunities.
Consolidation of the specialist finance market
In the months preceding COVID-19, the number of specialist financing firms entering the market was growing. As more and more brokers and borrowers became aware of the benefits bespoke loans could offer, demand for such services grew, and many new firms were keen to meet this demand.
However, as the reality of the pandemic hit, many of these firms found themselves unequipped with the experience needed to properly navigate these choppy waters. Established lenders, on the other hand, were able to rely on the quality of their services and the strength of their client-broker relations, leaving them as the only option for those seeking fast finance during the lockdown.
Specialist lenders that managed to continue through past lockdown are now experiencing a newfound appreciation of their services, a trend unlikely to end anytime soon. After all, borrowers and brokers benefit from specialist lenders due to their ability to deploy loans quickly and also tailor their products and services to the individual needs of each client.
Mortgage application difficulties
Finally, it is being reported that the those who are taking advantage of the mortgage payment holiday scheme are struggling to take on new debt. Given that the Financial Conduct Authority made it especially clear at the time that participation in this scheme wouldn’t affect one’s credit rating, the fact that some applicants have reported traditional lenders denying mortgage applications has left many prospective buyers worried and confused.
Of course, it is understandable that in these uncertain times, lenders would view a failure to meet previous mortgage payments as a negative mark on an applicant’s application. However, given the completely unprecedented nature of the times we now live in, lenders should not be penalising those that were simply following advice and taking advantage of a government-backed scheme. What is needed is for lenders to properly assess each application on a case by case basis before making a final decision.
Ultimately, I am optimistic that the lending market will make the changes needed to properly equip itself for the current climate. The property market is experiencing a mini boom, which is positive news for all those involved in real estate, including lenders. I look forward to seeing a sector primed and ready to play a leading part in the UK’s economic recovery.