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Non-banks face payment holiday struggle without access to TFS – Goodall

by: John Goodall, CEO of Landbay
  • 20/03/2020
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Non-banks face payment holiday struggle without access to TFS – Goodall
The times we are living in with regards to Covid-19 are unprecedented. While it is obviously a health crisis first and foremost, from an economic perspective this could end up be deeper than the financial crisis in 2008.


People are not going to work, businesses are not getting paid, people have stopped buying things or going out. Over the next few months this could be extremely severe.

So, of course I welcome government help for businesses, workers, homeowners and renters.

We are all going to need it, and I suspect still more will be required and so everything the government is doing I am supportive of.

We have to keep the economy above water and help those that need it over the coming months. But the government has to also consider those whose actions it is adversely impacting.


‘Basically free money’

The measure of a three-month payment holiday for residential mortgage holders who really need it was well received – and the government took the necessary measures to support this initiative.

Banks will receive billions of pounds under the Term Funding Scheme (TFS) which is basically free money for them to lend out.

So even if it the government imposes additional measures on banks, perhaps requesting that they have a policy of forbearance if borrowers fall into arrears as a condition or string attached to the TFS lending, I suspect banks will still be okay.

However, the same cannot be said for the non-bank lenders.

Non-bank lenders form a significant part of the specialist market, lending to buy-to-let landlords, the self-employed, contractors and other people who struggle to get a mainstream mortgage.

The government announced on 18 March that buy-to-let lenders also need to allow a three-month payment holiday for landlords in the same way as banks must for homeowners.

However, the big difference is that the chancellor is not giving non-bank lenders any assistance or help as the TFS scheme is only available to banks.


Markets pretty much closed

Most non-bank lenders use capital markets to fund their loans, i.e. they use securitisation.

Typically, the ultimate investors in these are large fund managers of pensions or investment funds.  These funds cannot afford to take a lot of risk so, as you can imagine, over the last week this market has pretty much closed.

At the same time the cost of capital markets funding, if you can get it, is so expensive it does not currently make economic sense to lend using this money.

So non-bank lenders already face a funding challenge.

The government’s measure that lenders need to allow landlords to take a three-month payment holiday makes things even harder as it is asking the lenders, or the ultimate funders, to take the hit.

While some lenders will weather the storm others will really struggle to meet these objectives.

I appreciate the government needed to make promises quickly, and it is of course right that measures are put in place for tenants as well as homeowners, but the government also needs recognise the consequences of this.

It needs to step in now and give the non-bank lender market the same assistance it provides to the banks.



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