Brexit voted biggest threat to specialist lending

A new poll has found the implications of the UK leaving the European Union is currently the biggest threat to specialist lending.

Bridging & Commercial’s latest online poll found that 39% of finance professionals saw Brexit as the biggest threat to alternative lenders with regulation (25%) and competition barriers (14%) in second and third place.

The alternative finance industry had mixed reactions to the UK leaving the EU in June, while the industry was later given a boost by the Competition and Market Authority’s measures to increase competition.

Brexit deemed to be biggest threat to specialist lenders

To see if they agreed with the poll, Bridging & Commercial spoke to a number of alternative lenders to find out what they saw as the biggest threat to their industry.

Sam Howard, COO of specialist development lender Regentsmead, said these results did tally with what it had been seeing in the industry.

“The first few weeks after the June referendum were characterised by people pulling up the drawbridge, although thankfully a sense of rationality has now returned.

“The problem is that it is too early to judge the effects of Brexit and that causes the dreaded uncertainty which markets hate.

“So yes I would say the uncertainty caused by Brexit is the biggest concern for the specialist lending industry.”

Bob Sturges, head of PR and communications at Fortwell Capital, also felt the results reflected the diverse funding models and areas of operation to be found among specialist short-term lenders.

“Those reliant on external funding will justifiably be concerned about Brexit and the forthcoming negotiations to determine the terms of our leaving the EU.

“Some will already have felt the impact of funding being less-readily available.

“Regulated lenders will be casting an eye at the FCA and its seemingly growing appetite to intervene in what is arguably the UK’s most dynamic lending sector.

“Others will wonder how long a relatively small market worth £3-£4bn a year can sustain a relatively large number of players vying for a relatively static pool of business.”

James Bloom, managing director of development finance at Masthaven, said it embraced competition and regulation.

“At Masthaven we do not consider Brexit to be a threat, but are aware it is the most pressing factor in the market to consider.

“We are waiting to see if there are any longer-term effects on the market, but in the meantime we will continue to increase our loan book and pipeline on a sensible and cautious basis.”

Bob also didn’t think Brexit was a threat and felt it could help lenders adding: “Had it gone the other way, I’m certain a fresh flood of money from opportunistic investors would have poured into the sector, so ramping up further the competitive pressures on pricing, LTVs, fees and risk.

“Another point of comfort is the relatively low score for ‘reputation’ [one of the poll options]. I think this is right, and while we should always guard against hubris and complacency, I see … little significant risk to the sector of the type with the potential to damage P2P lending.”

Rishi Khosla, CEO and co-founder of OakNorth Bank, was actually surprised that Brexit was considered to be such a major threat.

“From OakNorth’s perspective, we’ve actually seen it as an opportunity to gain market share from the larger banks as they’ve been retrenching from the market.

“On the day following the vote, we had two opportunities come in as a direct result of larger banks pulling out of deals, and since 24th June we’ve closed over £50m in deals, including a £19m [deal] with restaurant chain Leon.”

Rishi, however, felt a key challenge for alternative lenders was the lack of awareness among SMEs and other providers.

“The SME market share of the big four banks (RBS, Barclays, Lloyds and HSBC) is 83% and has only declined by 1% since 2012.

“Over half of start-up SMEs in the UK go to their personal current account provider for their business current account, and 90% of businesses seeking a loan, do so from their business current account provider, often without shopping around.

“This lack of awareness puts new specialist banks such as OakNorth at a competitive disadvantage to the larger banks that have had years to build a relationship with their SME clients and a first-mover advantage.”

Bob, meanwhile, said the biggest challenge for Fortwell was concern surrounding external funding.

“We have effectively dealt with the competitive issue by recently moving up the value scale and away from the hardest fought-over part of the market in the £500k-£2m lending bracket.

“But in moving up the scale we need, on occasions, to find syndicate partners for very high-quantum transactions (£20m+).

“This will be more challenging in the short term.”

Meanwhile, Ashley Ilsen, head of lending at Regentsmead, concluded: “Personally I don’t see any of the areas [poll options] … as ‘threats’ as such, but what they all do is throw up more opportunity.

“No one is able to move to the same levels of speed and flexibility as specialist lenders, which means that by their very nature they are best equipped to deal with inherent changes in the market.

“What we do isn’t rocket science, but it’s the lenders that do the basics well that will be the ones that perform the best over the coming years.”

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