Paresh Raja, CEO, Market Financial Solutions looks at how COVID-19 has affected the property market, its impact on specialist lending and how we can recover from the ‘greatest earnings shock in modern economic history.’
The COVID-19 pandemic has had a profound impact on the property sector. The implementation of lockdown measures posed significant challenges for lenders, brokers, buyers and sellers, with some questioning whether real estate would be in a position to recover from the pandemic after the virus is contained.
With social distancing measures slowly being relaxed, it looks as though things are slowly returning back to normal. However, I do not believe the changes brought about by COVID-19 will be temporary.
This is particularly true when we look at the specialist lending market, and how bridging lenders have stepped up to address the finance needs of those in the middle of a property transaction.
Understanding the impact of COVID-19 on homebuyers
One could not expect the property industry to carry on unaffected by the COVID-19 lockdown. The various individuals that need to be involved in the transfer of a property, be they conveyancers, estate agents or developers finishing a home ready for sale, all have had to abide by social distancing measures.
Combine this strain with what many are calling ‘the greatest earnings shock in modern economic history’, with millions furloughed on reduced pay, and it’s obvious the surge in property activity witnessed at the beginning of the year could not continue unabated.
But these issues were exacerbated when banks began realising the amount of uncalculatable risk involved in handing out mortgages in current conditions. Not only is the impact of COVID-19 on house price growth and demand hard to quantify – the very nature of this virus means there is a lot that could derail agreements in the future.
A second spike in cases could lead to a reintroduction of lockdown measures, once again bringing the property market to a standstill. Given a large number of mortgage providers retreated from the market in response to the outbreak of the virus, we could once again see a mass exodus of available loan products and services. This puts buyers (and indeed, sellers), in a very precarious position.
This is why specialist finance providers have been integral in supporting the finance needs of homebuyers and property investors. Bridging lenders have been growing in popularity since the global financial crisis (GFC), demonstrating that in times of volatility, specialist finance can be deployed to those stuck in the most complex of financial positions.
The consolidation of the specialist finance market
Since the GFC, the bridging sector in the UK has grown to over £4 billion in value. This is impressive and reflects growing market awareness of alternative finance solutions and lenders beyond the traditional high street banks. As a result, there was a notable increase in the number of specialist finance providers entering the market.
With demand for bridging loans rising, these new lenders were responding to cases by offering to support property transactions quickly and efficiently. Unlike more established lenders like Market Financial Solutions, these new firms had not yet experienced the challenges posed by sudden and sharp economic disruption.
For many of these new lenders, COVID-19 has been a trying time. In my view, it is leading to the consolidation of the market by testing the expertise and capabilities of lenders. Those who are able to weather the problems posed will come out on top and ensure the availability of market-leading specialist finance products and services.
Once we have overcome the novel coronavirus, there is good reason for brokers and borrowers to be optimistic about the future. Those looking to start or complete on a property transaction will benefit from a specialist finance market full of lenders who have refined their craft and demonstrated their expertise in handling cases during difficult trading conditions. If anything, COVID-19 has demonstrated why specialist finance, and specifically bridging loans, are here to stay.
This article was written by Paresh Raja, CEO, Market Financial Solutions.
For more information on Paresh and Market Financial Solutions, visit www.mfsuk.com.
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