One future takeaway might be how we balance government support with the provision of mortgages by specialist, non-deposit taking, lending institutions.
It seems likely this period will result in greater numbers of borrowers requiring specialist mortgage loans; buy-to-let, self-employed, contractors and freelancers or indeed the credit-impaired.
It does not take a genius to work out that these borrower demographics might grow as a result of the economic impact of Covid-19.
And where will they turn for mortgages? Specialist lenders will probably fill this particular breach so there will need to be a change in thinking around government support and who can access it.
Specialist lenders have, once again, been placed in a tricky position during the crisis because, for the most part, they have not been able to make use of the government and Bank of England money that has been freely available to deposit-taking organisations.
Costly funds
The capital markets have effectively been closed for the past six to eight weeks, meaning the spreads have widened, and the cost of funds have moved from 90 basis points over the London inter-bank offered rate (Libor), to a peak of 310 points over Libor.
Obviously the cost of this money was far too much to be passed onto borrowers.
Hence, the decision by many specialists to either cease new business entirely or to pull back considerably. It has meant less lending and tighter criteria.
The fact is that advisers would not have been able to sell mortgages to clients at the costs we would have needed to put on our loans.
It has meant a specialist lending sector under severe pressure, and while there are some green shoots starting to be seen, this is a long-term ‘game’.
There has been some talk that we might see movement in the capital markets by September or October. Other commentators have suggested the market could be in limbo until the Spring of 2021.
That has serious repercussions for a number of lenders and it could mean the difference between survival or not.
It would be incredibly frustrating to see fewer lenders and products in the specialist space, at a time when the need for these mortgages is only likely to grow.
Need for a solution
Fleet has been fortunate in that we negotiated lines with our funders to keep lending during this period, albeit at a reduced level. But it would have been incredibly helpful to have access to the government support.
This was not, however, possible.
If there are further waves of Covid-19, or indeed future virus strains which have a severe impact on our market, then we need to find a solution here.
Specialist lenders contribute a great deal in terms of helping borrowers who would otherwise not be helped by the mainstream players.
We talk a lot about the depth and breadth of the UK mortgage market and the recognition that this is not supplied in its entirety by deposit-taking banks and building societies.
That being the case, I’m sure a solution can be found to support those lenders during future turbulent times – the benefits for the market and those borrowers would be huge. We must keep working towards it.
