While many traditional lenders headed for the hills during the global crisis, others spotted an opportunity and got stuck in
Arguably the greatest volume of poetry ever written is Les Fleurs du Mal by 19th century French author Charles Baudelaire. It portrays a broken world with little order, even less consistency and all manner of deviance. Yet it is a world where, despite all the chaos and uncertainty, there is still hope.
So outraged were the authorities upon publication of the work that they fined Baudelaire 300 francs for penning an “outrage aux bonnes moeurs” (insult to public decency). This, of course, made even more people want to read it and so a timeless piece of literature was born.
I’m trying to make the point, in a roundabout way, that even during periods of great uncertainty (‘mal’) – as we are in at present – there is still plenty of hope (‘fleurs’) for brokers. Whatever happens, there will always be new market opportunities and new lenders to service them.
And what a highly uncertain time this is. Politically, we’ve got a leader who is arguably in office but not in power, and an opposition leader who would surely introduce all kinds of problem for UK Plc. There’s also the small matter of Brexit — hard, soft or medium-rare — and a government without a mandate trying to negotiate it.
There’s a huge amount of economic uncertainty too. Again, the impact of Brexit is the big one, but a lot of mixed messages are emerging from the Monetary Policy Committee on the direction of interest rates – an issue that is becoming ever more pressing given the sharp growth in inflation. The Bank of England may not want to act but, if inflation continues on its current trajectory, it could be forced to.
Closer to home, the housing market as a whole is slowing up. Prices, most agree, are being propped up only by the lack of properties available for sale.
The BoE, as revealed in its latest Financial Stability Report, is also worried about the rise in consumer credit. With interest rates on loans and credit facilities so low, households have been borrowing like it’s going out of fashion.
Sadly, the one thing that doesn’t go out of fashion is the requirement for people to pay back the loans they take out. And that, according to governor Mark Carney and the MPC crew at the Bank, could be a growing problem – all the more so if rates rise.
Alongside the potential for rate rises, many lenders are having to operate under strict new stress-testing and affordability rules. With potentially more stringent criteria to come, there’s even more uncertainty facing borrowers and brokers. Risk has rarely been under such intense scrutiny.
In short, it’s a testing and increasingly tumultuous environment. But I’m not worried.
When I launched my first specialist lender, Dragonfly Property Finance, back in 2009, things were far worse than they are at present; for a while, the whole global financial system was under threat. But against this bleakest of backdrops, the UK property finance market adapted and evolved.
New lenders emerged that would not just tick boxes but look at applications on merit and actually seek to understand them. While many traditional lenders headed for the hills, others saw an opportunity and got stuck in.
As concerns about risk grow today, the number of lenders that can actually understand it, and that are able to operate in a less predictable and stable environment, will also grow. That’s because, if we learned one thing from the global financial crisis, it was that lending and business models would evolve.
Our own risk-based approach to lending is, hopefully, an example of that.
So however grim the outlook, I believe there will always be some good — and the market will always find a way.
Jonathan Samuels is chief executive at Octane Capital