specialist finance sector

Is it 'business as usual' for the specialist finance sector?

The impact of Covid-19 has been significant and will continue to test the UK's specialist and wider financial markets.

According to the latest forecast by the British Chambers of Commerce (BCC), UK economic growth is expected to slow “sharply” in 2020 due to the disruption caused by the impact of the pandemic.

The business group has downgraded its UK GDP growth expectations for 2020 to 0.8%, from its previous forecast of 1%. 

This is a reduction on the 1.4% growth achieved in 2019.

Outside of the 2008/09 financial crisis, this would mark the weakest full year of growth since 1992.

Despite this initial projection, many companies remain hopeful and optimistic about the future, with some even suggesting that the market could in fact be a secure financial environment.

A specialist viewpoint

According to Chris Oatway, owner and director at LDNfinance, the broker has seen an increase in business on its specialist finance side. 

Despite Chris suggesting that this could be attributed to the impact of the "Boris bounce” as well as to the growth of LDNfinance, this is still positive news for the sector.

“There is a lot of nervousness in the market due to Covid-19, about how this could impact the funding lines and whether acquisition levels will drop.

“[However,] in general, it’s clear that the lenders are fully set up for this situation and have significant liquidity, with the consistent message being put out of ‘business as usual’.”

The Association of Short Term Lenders (ASTL) takes a similar view. 

An announcement from the association revealed that should it need to close its offices, staff could work from home and there should be “little or no impact” on its ability to respond to requests from businesses.

Chris added that although it was important for people to be aware that the situation could change quickly, so far, the financial adviser had not seen client appetite “dwindle”.

“…In some cases, we are simply extending terms to protect the client and the lender from potential delays.”

In the medium term, David Higson, investment director and head of property at Blackfinch Property, suggested that building projects could be delayed if the virus isn’t contained.

“This may be due to local outbreaks affecting workforces, or supply chains of building materials being slowed down.

“However, it is expected that these would likely only be short delays of two to three months maximum.

“There could also be a short-term slowdown on some sales volumes as buyers wait for more certainty to return once the impact can be fully assessed.”

Despite this initial uncertainty, David underlined that any impact on residential and commercial property prices due to a general economic slowdown should take “much longer to materialise”. 

“This gives us time to take the necessary steps to mitigate any risks when signing up new loans and making decisions on existing loans.

“Longer term, and with a background of forecast population growth, if less development activity occurs, this will only reduce supply and create an upward pressure on prices.

“This would, to an extent, counterbalance any economic impact.”

An alternative opportunity for investment?

Yann Murciano, CEO at Blend Network, highlighted that the property finance sector could be an opportune alternative for investors. 

“Investors should be looking at fixed return and less risky alternative investment options,” he stated.

“We have already seen investors liquidating their equity positions and looking for alternatives that provide steady yield. 

“A good option remains investing in fixed returns property lending.”

Yann stated that P2P property lending was a “go-to shield from current market volatility for investors”.

"Although [uncertainty regarding] the virus will undoubtedly affect the London property sector, this will largely be confined to the international buyer and luxury property market focused on prime central London.

“Outside the capital, property prices are less volatile and there is a growing pool of local, specialised developers delivering projects with strong investment potential in which investors are showing an increased interest and which is clear from the increased demand we are seeing on our platform, too.”

Yann added that sub-sectors, such as social, affordable and low-cost housing — where there is a clear undersupply — were likely to be among those that investors targeted as they “seek safety” in the current environment.

David shared this view by claiming that the property finance market would be in a “much better short-term position than more liquid investments”.

“Property as an asset class is not as liquid as listed securities and is, therefore, less correlated with short-term market sentiment and, consequently, short-term panic will not have the impact on the value, as will be the case on the stock markets.

“This applies particularly in the residential property sector, which has more of a reliance on the demographic fundamentals of supply and demand for housing, rather than the economy.”

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