In our advisory business, we are now seeing minimal activity among high street banks and other familiar lenders. As a bridging lender, we are receiving numerous enquiries from borrowers who are being exited by their lenders and disappointed by heads of terms that are not closing.

We are reminded of several periods of poor economic performance and dysfunctional credit markets. The 1970s, for example, was a period of stagflation (high inflation and poor economic growth). We believe the UK could be heading in this direction again, in part because of the American election and in part because of Brexit.

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The dollar is likely to continue to become more valuable relative to the pound, because of the inflationary policies of the incoming Trump administration and the pound having already declined significantly relative to other currencies due to Brexit. Moreover, limitation on the supply of labour is likely to increase the operating costs of functioning businesses in the UK over the next few years. And certainly, the increased cost of imports is going to drive up consumer prices and interest rates. 

My message is that history could be repeating itself. Investors and developers should not assume their loans are going to close or to be renewed, even if they have a term sheet and the lender professes to be actively looking for new business. In 2006 and early 2007, lenders were eagerly chasing new business. By the end of 2007, the system had seized with the ramifications of the credit crunch, hundreds and thousands of foreclosures, failed restructurings and bad debt swaps.

A number of providers are currently advocating sale-leasebacks as a substitute for long-term debt. In a period of weak operating performance and increasing inflation, sale-leasebacks are counterproductive. They do not provide a hedge against inflation; payments increase, just as operating income declines. For stabilised assets, now is the time to be seeking out long-term fixed debt, and to avoid sale-leasebacks.