As the UK debates and discusses the effects of the Brexit vote, and predicts what the future holds for the country, it is time to question what the impact has been to the short term finance sector.
Irrespective of personal voting decisions and opinions regarding what lies ahead in the medium to long term, the immediate question is whether the Brexit vote has in fact created circumstances which have taken the heat out of the sector and helped to re-align the market?
What has changed?
Prior to the vote, it was evident that competition within the sector was at an all-time high with the market becoming increasingly over saturated and a greater number of lenders competing for market share. The sector saw some lenders exploring opportunities for achieving growth through diversification of their product offering and in some cases, investigating particular lending niches. There was also evidence of some lenders adopting a higher risk approach to lending, through increased LTVs and relaxed underwriting criteria.
Whilst the latter approach to gaining market share was not widely adopted, particularly amongst the more established and experienced lenders, there was evidence of such practices being implemented, posing a risk for the sector as a whole.
Although it is currently a case of ‘wait and see’ regarding any significant long term changes to the market when the country commences the ‘Brexit process’, we are already seeing an immediate change in the sector. Lenders who have always maintained a ‘Responsible Lending’ approach, centred on the principles of ‘Treating Customers Fairly’ appear to be immediately less impacted and influenced by the Brexit vote. On the other hand, those lenders who adopted a higher risk position, are now facing greater uncertainty as we move forward.
These changes within the sector are apparent and we cannot consider this solely in isolation and must therefore consider the wider factors influencing activity.
Property transactions have seen a decline in the post Brexit environment, demonstrating that UK residents appear to be airing of the side of caution. However, foreign investment in the UK property market remains strong, with investors seeking competitive returns in a proven location. The immediate drop in the value of the pound has certainly assisted in overcoming any hesitation, with investors now able to acquire property much cheaper, and therefore achieving greater returns.
It has been reported that China’s largest international property portal has seen enquiries into UK property at a rate 40% higher than average in the month following the vote, therefore demonstrating the significant level of demand present.
At Bridgebank Capital, we have certainly seen evidence of an increase in activity ‘post-Brexit’ of non-domiciled overseas borrowers investing in the market.
We cannot pre-empt what lies ahead, but has Brexit already proven to be immediately beneficial to short term finance sector?