Moving beyond COVID-19
The COVID-19 pandemic has had a huge impact on all of our lives.
I remember gathering my team around me in our office to discuss the crisis, not knowing at that time that it would be the last time we would all be together in the same room for quite a while.
Even the most pessimistic amongst us never imagined that our Prime Minister would announce such drastic containment measures and effectively ‘close’ the country down.
But that’s exactly what he did and as hard as that has been to deal with, indications are that it has made a difference and infections are slowing down, so it would be hard to argue with the course of action taken.
But now what?
For some of us working in the property and lending sector, the effects of the lockdown have been far reaching and in some cases, catastrophic.
Some lenders stopped lending, valuers stopped valuing and house builders stopped building.
The knock on effect has been huge. A number of lenders like ourselves continued lending but other lenders decided to exit the market altogether.
One thing this crisis has shown though, is that a lenders operating model is key when faced with such a crisis.
LEAN & AGILE
We have always operated a lean and flat management structure. Unlike other lenders who have employed lots of field based BDMs, we never have.
One reason for that is we want to be able to offer our introducers and borrowers direct access to decision makers at all times and a salesperson with a target to achieve isn’t always the best judge on whether a deal is suitable or not.
Secondly, somebody working in the regions will not have the same relationship or rapport with the office based personnel.
This is important to us as we are a close knit team and we all regularly ‘get stuck in’ to jobs that are not listed in our role profiles.
The senior members of my management team have access to me pretty much all of the time and they in turn know what we will lend on and what we won’t, so I don’t get inundated with unsuitable deals.
This lean model, combined with a flat management structure, allows us to be agile and responsive and it’s not unusual for the team to respond to new enquiries at weekends or evenings, as I am sure many of our brokers will testify to.
We know of lenders doing similar volumes to ourselves with 5x the number of staff we have, yet COVID-19 has shown that our model is resilient and financially viable, even more so in times of national emergency.
It’s not to say that as we grow we won’t take on more people because we will but everyone who joins us has to add real value and be accountable – we don’t employ passengers.
THE LENDING LANDSCAPE
The main issue with lenders deciding to pause lending has to do with the way they are funded.
Those lenders that rely on institutional or bank funding were the first to pull out or drastically reduce their offering.
Secondly, a few Peer2Peer (P2P) lenders also pulled their products.
At the time of writing, a number of these lenders still haven’t returned to the market.
I concur with the view shared by many of my peers in the lending sector that the effects of the crisis will see a reduction in the number of lenders left, by merger or acquisition or from pulling out of the market altogether because of funding issues.
Going forward, the way a lender is funded will become even more important.
THE POWER OF PRIVATE FUNDING
We are and always have been, privately funded.
We are well capitalised and have access to a significant amount of private funding, certainly enough for us to achieve our growth aspirations for the next 2-3 years.
Opportunities for agile, aggressive and ambitious lenders like ourselves will arise in the aftermath of COVID-19 and we are well placed to take advantage of them.
Because we are using our own private funds, all of the team feel personally responsible for each and every deal we do and that is where the accountability I mentioned earlier comes into play.
Each member of our team is fully invested in each project we approve. Not financially of course but in terms of commitment and determination to complete the transaction and then closely monitor progress until it’s time for us to be repaid.
COVID-19 has changed the lending landscape in the short term.
Rates have gone up, LTVs have come down and no longer are lenders lending against riskier asset classes just to gain a little bit of market share.
Whilst I don’t think that this will be a permanent change, there is no question that the short term lending sector has hit the reset button.
Good quality deals are the order of the day, not volume for the sake of vanity.
- Source of funding will become more important to borrowers
- A lean operating model will become the industry standard
- Access to decision makers will take precedent over purely field based sales personnel
- M&A activity will increase significantly and a number of lenders will exit the market
- LTVs will become more conservative than they were pre-COVID for at least the next 12-18 months
Edward Chantler, Chief Executive and Founder, Stretton Capital