The Bank of England thinks we could get through a disorderly scenario, and we will if we are flexible, come together and maintain standards
It has been quite impossible for some time to write any update about the bridging market without leading on Brexit and the outcome it will have on property transactions and prices, employment levels, funding and interest rates.
There are few elements of the market that will not be impacted, so we must all hold on, waiting to see what will happen.
That said, we can at least take some comfort in knowing the Bank of England has been preparing for eventualities within its Financial Stability Report, which identifies potential risks of disruption to the financial system.
The report is published every six months, and the latest version was released in November.
Within this report, the Financial Policy Committee reviewed a disorderly Brexit scenario – with no deal and no transition period – that leads to a severe economic shock. Based on a comparison of this scenario with stress testing, the FPC judged the UK banking system strong enough to continue to serve households and businesses.
The economic scenario in the 2018 stress test of major UK banks was sufficiently severe to encompass ‘worst case’ assumptions about the challenges they could face in the event of a cliff-edge Brexit.
These included the sudden imposition of trade barriers with the European Union, loss of existing trade agreements with other countries, severe customs disruption, a sharp increase in the risk premium on UK assets and negative spillovers to wider UK financial markets.
The report suggested that, because major UK banks would be resilient to the tougher annual stress test, they would also be resilient to – rather than amplify – the disorderly Brexit scenario.
But while the Bank of England expects the banking system to be resilient in the increasingly likely event of a disorderly Brexit, macro resilience does not necessarily mean success for businesses.
As an industry, we will have to negotiate whatever environment we are faced with, but we also have our own role to play in the economy and its path in the coming months and years.
The bridging sector is a vital source of funding for small and medium-sized businesses. These are businesses for whom cashflow will be crucial after Brexit and for whom the ability to access funding on fair and flexible terms will be important.
So the shifting economic environment provides an opportunity for short-term lenders to add value to business owners and intermediaries, while also growing their own businesses.
Within this opportunity, however, there lies great responsibility. Loans handed out without diligence or care could create greater instability, which will have a negative impact on the economy. So we must ensure that we maintain a flight to quality during this uncertain period. We need underwriting practices that are robust, and policies and processes that are able to promote positive behaviours.
The key for short-term lenders is to proceed with care. Today’s lending environment is a competitive one, with many competing over the same staff.
As such, firms need to invest in people to ensure that they mitigate the threat of a skills shortage and can have confidence in the decisions they make. They also need to invest in technology so that skilled people have reliable data to work with and information-gathering can be improved.
It is so important that, as an industry, we are able to put aside commercial differences and come together to share expertise and best practice, and promote a flight to quality.
Developing this approach of mutually beneficial co-operation will be a key focus for us this year. With a focus on quality and the ability to share and adapt, we believe that the bridging sector will emerge from the uncertainty of Brexit with greater resilience and even more opportunity.
Benson Hersch is chief executive of the ASTL