This recent rocky environment follows an uptick in inflation to 2.6% in November 2024, and the first Labour Budget in 14 years.

With the value of the pound falling and the cost of UK borrowing on the rise, B&C asked industry professionals what impact this could have on the specialist finance market.

“The news is likely to have a substantial impact on the market; increased cost of capital and rising gilt yields would certainly indicate higher costs to specialist lenders when it comes to raising funds,” said Tanya Elmaz, director of intermediary relations at Together.

She continued: “Ultimately, this could directly impact the cost of providing specialist loans.”

Tanya pointed to the possibility of investors becoming more cautious if we see continuing economic instability and a lack of growth, which could also stifle the availability of funds to the specialist finance market.

Despite this, she noted that the challenges for businesses that come with currency volatility could lead to a hike in demand for short-term specialist lending.

“We are likely to see concerns in the industry around affordability pressure, leading to higher priced and less affordable loans which would have an impact on the volume of business across the board.”

Matthew Martin, director at Align Property Finance, believes the rise in UK long-term bond yields is a cause for “significant concern”.

“Higher yields increase borrowing costs for the government and can lead to higher interest rates across the economy,” he stated.

“While the current situation is reminiscent of the post-mini budget in 2022, it is not as severe but does add to the growing pressure on chancellor Rachel Reeves.”

Matthew considered that increasing bond yields and a slowdown in base rate cuts could lead to costlier borrowing and therefore more expensive loans.

In terms of lenders that are funded from US-backed investors, the impact may be more felt.

According to Oliver Daniels, an analyst at Albatross Lending Group, the current climate is a bleed through from rising US gilt yields.

“The effects on the specialist finance market would be more noticeable within firms whose funding originates from the US, as we observe indications of a macro environment with rising central bank rates.

“Due to the likely fixed nature of their capital raising, the response will be moderate.

“However, once those lines raise new capital, which itself may become more challenging, the impact will start to feed through to the UK borrower.”

Oliver also highlighted that the repayment of dollar-dominated debts with a GBP/USD differential would also impact costs.

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“Overall, UK-based lenders where they are reliant on USD-denominated funding will see more rate sensitivity compared with firms whose funding is isolated away from the US market.”

Streambank managing director Roz Cawood feels that while some funding lines, particularly those that are international — and especially those in the US — could put pressure on costs, the market will continue to show resilience.

“It’s nothing the sector hasn’t navigated before,” she said.

Roxanne Goodman, founder of Female Founder Finance, suspects the bite of the current climate may be felt more heavily by female-founded businesses.

“These challenges are especially acute for female founders in the UK,” she said.

“Female-led businesses often face existing barriers to accessing finance, including underrepresentation in traditional lending markets.

“A rising cost environment risks amplifying these issues, making it even more critical for specialist lenders to step up.

“At Female Founder Finance, we are deeply concerned about the potential for female founders to be disproportionately affected.

“Many women-led businesses are in growth or early-stage development, where access to finance is essential and more vulnerable to cost fluctuations.”

In Roxanne’s view, the industry needs to ease the potential challenges for female-founded businesses by providing tailored funding solutions, mitigating currency and interest rate risks, and offering flexible terms.

While the current environment may have the industry looking over its shoulder, many emphasise the market’s resilience. After all, the specialist finance sector often prospers where the broader market falters.

“Despite these challenges, it is worth remembering that the specialist lending industry has historically proven its resilience, due to its ability to adapt to change,” explained Tanya.

“In uncertain times, demand for alternative lending increases and individuals and businesses seek flexible solutions, commonsense, and speed that traditional lenders may not be able to deliver.

 “The key to success will likely be adapting to pricing changes, managing risk, and supporting partners and customers with clear communication.”

Roz added: “This is an opportunity for lenders and brokers to get creative, stay nimble, and keep delivering fast, dependable finance to clients.

“Demand for specialist finance remains strong, and we’re confident that with the right mindset, the market can continue to thrive and help borrowers through these changing conditions.”

Paresh Raja, CEO at Market Financial Solutions, also emphasised the versatility of the market: “Lenders in the specialist finance sector will, of course, be watching these developments closely.

“But it’s crucial to recognise that this sector is incredibly adaptable.

“It consistently finds ways to ensure brokers and borrowers can access the finance they need to navigate the UK property market with confidence, no matter how complex the financial situation might be.

“As such, while the current market volatility may create some short-term challenges, it also presents an opportunity for innovation and flexibility within the specialist finance sector.”