Barely a day goes by without some fresh statistical evidence of this. But, the world keeps turning and the post-coronavirus business environment will not be kind to those who do not prepare for it now.
- Will the bridging and development markets start looking like they did 10 years ago due to Covid-19?
- The time to talk forbearance is now
- Bridging loans due for repayment within next three to six months 'could be heavily impacted'
Social distancing restrictions remain firmly in place for now, and that will continue to have a negative effect. In the property sector, the difficulties have been obvious. In particular, the inability of valuers to enter properties had a freezing effect on transactions, with many lenders, especially in the short-term finance market, deciding that desktop valuations cannot be sufficiently relied on as the basis for underwriting high-risk loans. Some had temporarily withdrawn from the market altogether; those who were still active applied a cautious LTV limit on new transactions.
Construction work has also suffered. It has been understandably difficult to adapt sites to social distancing, and those that have continued to operate have faced significant challenges in obtaining supplies of vital materials as builders’ merchants have been forced to shut shop due to a fall in demand.
Slowly but surely, though, the industry is adapting to the straitened circumstances in which we all find ourselves operating. Despite social distancing, business is still being done, transactions are still going through, and there is, deep down, a sense of confidence that the market fundamentals remain healthy. As restrictions are gradually lifted and we begin to return to the semblance of normality, demand may take some time to recover fully, but it is still there.
Valuers are returning to work, on the basis that social distancing can be observed and sensible precautions are taken against possible infection. Many developers have announced they are gradually reopening construction sites — again, operating under strict industry guidelines — and this should, in turn, make it easier for smaller-scale projects to access parts and materials.
These are swallows that do not yet make a spring.
There should be no unseemly haste to return to normality, but neither should we all just sit back and wait for it all to end. For lenders, that means thinking carefully about how they are going to manage distressed assets — including those that were distressed before the lockdown, as well as those where borrowers find themselves in difficulty as a result of it. This thought process needs to be informed by frank conversations with borrowers themselves, wherever possible, combined with the most accurate and comprehensive information available about the state of the market and local conditions.
We will all too soon be nearing the end of the initial three-month period for mortgage holidays. I believe there is a strong possibility that the government will extend its support and lenders will come under strong pressure to follow suit. Nonetheless, the end of this period should mark a turning point, where we all move away from the initial shock-absorption phase and begin to turn our minds more actively to how we can operate effectively once normality does begin to return.