The 2008 global financial crisis, for example, was devastating for the mortgage market, especially for non-bank lenders.
After the sub-prime bubble burst, the securitsation market froze and funding lines evaporated, leaving non-bank lenders unable to lend.
As we now know that situation was unsustainable and many lenders went to the wall. In an instant the specialist lending market in the UK effectively disappeared.
Can we then expect to see something similar happen during the current crisis?
No, I don’t think so, as conditions this time around are very different to what they were a decade ago.
While we have seen criteria tighten and some product lines disappear during the pandemic, the liquidity problem that dogged the market in 2008 doesn’t exist in 2021.
Healthy funding conditions
So far, funding conditions have remained healthy, meaning non-bank lenders have been able to keep lending throughout the pandemic.
For example, just last month we were able to complete on our first ever securitisation despite going to market during the worst economic downturn in more than 300 years.
Not only that, but the senior notes were over three times oversubscribed and the mezzanine notes over six times, in addition to the deal achieving a level of pricing that exceeded all expectations.
I mention this not as a means of self-congratulation, but because I believe it offers hope to those lenders and brokers operating in the specialist lending space.
This shows securitisation is possible even now and it is possible to achieve optimal pricing and that will no doubt encourage others to follow.
Indeed, since we went to market, Lendco issued its own well priced securitisation and Kensington has been active with its first social residential mortgage backed securitisation in Europe – great innovation from a well-established lender.
The easier it is to securitise and to achieve a good price, the more tempting it will be to new funders eyeing up the mortgage market.
If that results in a greater number of funding options, that can only be a positive thing for non-bank lenders, brokers and borrowers.
TFS benefits non-banks
Ironically, while lenders such as Keystone are not able to access the Term Funding Scheme (TFS), which provides cheap funding for banks, its very existence may also be a boom to lenders such as us.
While the TFS is available, the big banks have very little need to securitise their loan books, as they can access much cheaper funding from the Bank of England.
In turn, it means non-bank lenders and their funders can securitise on much more favourable terms.
The overall net effect of this will be increased specialist lending, keener non-bank product pricing and more consistent lending even in the most testing of market conditions.
This last point is perhaps the most important of all. After the pandemic has passed, the demand for specialist lending will be much greater than pre-Covid times.
But, thankfully, this time around there will be a thriving and well-funded non-bank community ready and willing to service that demand.