Market overview: Optimism vs Realism
Despite economics being on the face of it largely about numbers, it’s important to not underestimate the importance of more abstract elements, such as sentiment and confidence. After all, bull and bear stock markets are often largely driven by underlying optimism or pessimism rather than the raw data and those who remember Northern Rock’s travails should acknowledge how critical TV pictures of savers queuing outside branches to withdraw their money – because they saw other people doing it – was in the Bank’s ultimate demise. It wasn’t about arrears or LTVs.
That’s why I was heartened to read a recent Deloitte survey which found that the chief financial officers of the largest companies in the UK have experienced the most significant surge in confidence since 2020. The report revealed that CFOs' sentiment has rebounded as their worries about energy prices and Brexit-related issues have subsided. In comparison to three months ago, 25% more CFOs were optimistic about the future than pessimistic, while 17% more felt the opposite. This movement in confidence hasn’t been seen since the Covid vaccine rollout.
Of course, inflation is a huge source of concern at present. We’ve seen the Bank of England increase interest rates from 0.1% in November 2021 to 4.25% in March 2023, which have had a huge effect on borrowers but not much difference to the rate of inflation, which is still stubbornly in double digits.
So it was good news to hear Andy Haldane, the former chief economist of the Bank of England predicting that inflation will fall rapidly in the coming months. Haldane told Sky News that he believed it was “pretty much nailed on” that inflation would halve before the end of 2023, largely because energy prices rises have slowed markedly.
Haldane said: “Fast forward six months and the headline inflation rate will not be double digits. It might be 3, 4 or 5%.” He was therefore urging members of the Monetary Policy Committee to think about holding the base rate for a month or two, rather than inflicting further pain on borrowers.
Property market resilience
Meanwhile, the Office for National Statistics (ONS) has reported that average UK house price fell for the third consecutive month in February (the most recent data available), on both a seasonally adjusted basis and a non-seasonally adjusted basis.
That said, this meant average UK house prices increased by 5.5% in the 12 months to February 2023, causing Jeremy Leaf, north London estate agent and a former RICS residential chairman, to remark that the housing market is proving to be resilient: “These are the most comprehensive of all housing surveys but the figures are a little dated, inevitably reporting on activity from a few months earlier when the market was in the doldrums. Since then, confidence has slowly improved in response to more choice and stabilising mortgage, if not base, rates.”
As a bridging lender, London Credit can report that activity levels are still high. At times when other parts of the property market are struggling, bridging can come into its own, whether it be helping counter chain breaks or providing fast finance to take advantage of forced sales, for example. That said, you need a lender who still has the appetite to do business when others may be less keen. At London Credit, we’ve been operating in the market for 13 years and so have the experience that many others simply don’t have. Equally, we have secure funding lines and can therefore provide offers which brokers and their clients can rely on.
What we and other lenders do need to be confident of is that the borrower has a realistic understanding of the market and has factored this into their application and exit strategy. We need to be assured that they have factored in realistic time scales and have a ‘plan B’ in case their preferred exit doesn’t come to fruition. The signs are there that the economy and property market are improving but it’s no time to be complacent – realism is what’s called for right now.
The importance of effective communication is something we consistently talk about at London Credit. It applies equally to as-yet introduced cases as it does to those in the pipeline and those post-completion. If you have a new case which still needs details to be finalised, talk to your BDM; they should be able to advise you on what’s realistic in the current market. Applications have a much better chance of being approved if the lender can see that the client has an accurate picture of today’s market as opposed to what they want it to look like.
Marios Theophanous, Credit Manager at London Credit.