It's been a turbulent few weeks in the global markets - so what does that mean for anyone that needs to borrow - to raise finance for a business, project, investment or to buy property?
We believe we may see some kind of lending slowdown (which shouldn’t be confused with a global banking crisis) and while credit may become harder to access in some cases, it will remain available.
Currently, we see a tale of two sides: there are plenty of lenders in good positions with strong liquidity and low-risk exposure. These players may become slightly more risk-averse and more restrictive as a protective measure, but these institutions aren’t at risk of default and they will continue to want to lend. As a result, we believe they will continue to carry on much as usual while carefully underwriting loans to limit risk from borrower exposure to more challenging markets and a potential economic contraction.
At the same time, some lenders – usually banks – are facing challenges as they try to stem outflows and manage market turbulance. Some of these institutions may need to be bailed out, and others may fail, as in the case of Silicon Valley Bank and Signature Bank. Others will have to be taken over, as we saw with the Credit Suisse and UBS 'superbank' merger. Where this happens, some geographies and sectors will be more affected than others: the fall of Silicon Valley Bank will have a profound effect on the tech sector, for example, and the UBS takeover of Credit Suisse will change the face of the Swiss banking sector, especially as the details of the deal are ironed out. These will have a ripple effect on other banks and the economy as a whole, and so a credit slowdown is possible.
What happens in global markets in the current weeks and months will determine how lenders change their approach to loans and financing. Whatever happens, however, credit will remain available, although it may be more challenging to access, depending on your situation and capital requirements.
Broadly, we expect the following might be the case:
In the current environment, some lenders may not want, or won't be able to to refinance existing facilities. This can happen if their affordability or stress testing analysis has changed, or if they have amended their lending criteria since you took out the loan.
It makes sense to approach lenders of existing facilities early to see if they have an appetite to refinance the loan or not, and gauge what they will offer you. Considering alternative finance packages will always make sense in the context of a loan term coming to an end, but knowing if a lender will not refinance a loan as early as possible is always helpful when there's any possibility you can't stay with your current lender. This is so you'll have ample time to have a broker arrange and negoitiate a competitive refinance package without the undue stress of a short timeline. Talk to a broker as early as 6-8 months in advance of your term coming to an end, especially if you have an unusual financial situation. You won't always have to start the refinance process immediately, but your broker will be able to advise you of your options, the products on the market, run potential cost simulations and help you understand when to start the process definitively.
You may find in the coming months that you need to access capital quickly. Uncertain economic situations, often raise unexpected challenges: maybe you have a cash-flow challenge, unexpected liabilities to pay or you need to restructure existing debt.
Using prime real estate (bridging finance) and securities (securities-backed lending) as collateral to raise capital against are some of the best ways to raise debt quickly and efficiently.
Bridging loans are secured property in the UK or abroad, and lenders can complete these loans in as little as a couple of weeks if you need funds very urgently. Unlike other types of finance, which tend to be structured as a product with a specific use case (like a mortgage) you can use bridging loans in a wide range of scenarios. You can use a bridging loan to access capital quickly by tapping into the equity you’ve built up in a property or real estate portfolio.
A number of high-value bridging lenders are smaller, independent players that offer a hollistic approach to lending and will offer finance for lots of different scenarios. Many are also principal lenders, which means they have immediate access to funds to lend and can make fast and pragmatic lending decisions. Enness can arrange high-value bridging loans of £1 million or more.
Securities-backed lending can be cheaper than conventional finance. Enness arranges high value Lombard loans and loans against single lines of stock including those listed on smaller stock exchanges, low trading volumes and high levels of private ownership. We also arrange financing for shares in pre-IPO companies, unlisted stock, bonds, private equity carry and hedge funds - all of which remains available in the current market.
In challenging economic situations, sometimes you’ll end up in scenarios where you need capital to solve a personal problem. This is relatively common, especially if you have significant wealth but little day-to-day income, which is the case for many high-net-worth individuals. You may need to restructure existing debt, pay off liabilities, save assets or simply access cash to fund your living expenses.
If you’re faced with a challenge and you need capital, get in touch – if you can afford a loan and you’re borrowing responsibly and with a solid plan for managing and paying back what you borrow, there are always options to explore and you don’t need to know what these are upfront. Simply approach us and we will work out what avenues are available to you based on your assets and what you need capital for – sometimes the cheapest and most beneficial solution is a type of loan you haven’t thought of or will see you use a different type of security than one you might have initially considered.
The most important thing is you need capital quickly to solve a challenge is to be proactive in seeking finance as soon as you recognise you have a problem: the longer you wait, the harder it will be to find a workable solution.
Don’t hide details to try or make the situation look ‘better’ than it is, which is rarely a good course of action. Be as realistic and as transparent with your broker as you possibly can so they can approach lenders in the same vein and answer their questions succinctly and quickly.
In the current market, lenders are more cautious and are asking for plenty of documentation and requiring absolutely watertight answers to their questions as they look to write loans. Details or facts you try to hide will eventually come out in the wash and anything you don’t share upfront that comes out during the application process will likely be construed as dishonesty and will probably see lenders shelve the deal.
This guide is for information and illustrative purposes only and nothing contain within should be construed as advice or a recommendation.
The views and opinions expressed in this piece are those of the author. They do not constitute advise or a recommendation, do not necessarily reflect the official policy or position of Enness, and are not intended to indicate any market or industry viewpoints, or those of other industry professionals
Financing options available to you will depend on your requirements and circumstances at the time. Any changes in your circumstances, any known likely changes, or omissions in the information you provide can affect the suitability of the options available to you. These should be communicated to us as early as possible.
If you are considering securing debts against your main home, such as for debt consolidation purposes, please think carefully about this and consider all other options available to you.
Your home may be repossessed if you do not keep us repayments on your mortgage or other debts secured on it.
Enness does not give advice on Securities Backed Lending or Luxury Asset Financing, and lender introductions are unregulated. This guide is for information and illustrative purposes only and nothing contain within should be construed as advice or a recommendation and is not an invitation to buy or sell securities.
Islay Robinson, a founder of Enness, is widely regarded as one of the UK's leading mortgage brokers. He has been instrumental in delivering some of the most complex and high value mortgages in the UK.