Brian West looks at how troubled times invariably give rise to invention and innovation.
It was the ancient Greek Philosopher Plato, some 400 years before the birth of Christ, who first coined this incredibly prescient adage. Necessity is most definitely the mother of invention but nothing turbo-charges the pace of invention like a full-blown crisis or, more seriously, a war!
World War 2 is a case in point. The pace of scientific and technological progress on both sides was simply staggering. Between 1939 and 1945 military technological advances saw the first jet planes take to the sky, the first long-range ballistic missiles (V2’s) slamming into London, the introduction of microwave radar and, to effectively end the war, the detonation of the world’s first atomic bombs. These and so many more inventions have shaped the modern world.
Whilst wars are perhaps the fastest agents of change, crises and, in our industry, economic crises in particular, have also consistently driven innovation and evolution. Back in 2008 the credit crunch was rapidly tightening its grip. The UK specialist lending sector was dominated by a small number of banks, be they high street lenders or American banks, funded largely by the securitisation model. When the US housing bubble burst those of us working in the industry remember just how quickly funding lines evaporated and the American Banks disappeared back across the Atlantic...
A large void was left, but into this space, slowly at first but then with ever growing momentum, grew a strong and vibrant specialist lending sector underpinned by an unprecedented diversity of funding sources. New lenders quickly proved they could thrive and grow in any macro-economic environment; many being founded in a period of huge economic uncertainty. This new breed of lender played a massive role, backing the inherent dynamism of our property investors and SME’s and ensuring we bounced back strongly from the worst recession in living memory.
Fast forward 15 years and several commentators have suggested that 2023 was the most challenging year for the specialist finance sector since the credit crunch. It was certainly turbulent as we grappled with the lingering impact of the Covid pandemic and war in Europe, but in no sense was last year comparable to the market in 2007/08 when liquidity disappeared almost overnight. That’s not to diminish the impact of rising inflation and interest rates nor the declines in property prices and living standards let alone all the turbulence caused by the infamous autumn mini budget in 2022.
Market conditions have been tough but an industry that was effectively borne out of the 2008-9 recession was always going to be well placed to deal with this latest turbulent period. Thus, many bridging and development lenders have focussed on driving efficiency by streamlining their processes, procedures, and documentation.
Products have become more targeted, particularly in areas of the market that have seen increased traction in 2023. Investment property purchase, particularly for the buy to rent market, and refurbishment loans have been in strong demand and consequently the strength and diversity of products catering for these uses has increased significantly.
Equally, ground up development products have been developed with a stronger emphasis on sustainability and eco-friendly practices. Innovation in the face market turmoil has once again been the order of the day!
What of 2024? With inflation returning closer to normal levels, real incomes improving as a result and mortgage costs falling sharply in recent months there is very real hope that we have reached the top of the interest rate cycle. Even Bank of England Governor Andrew Bailey has cautiously welcomed the recent fall in the cost of mortgages and signs that the housing market and prices are beginning to stabilise. Markets even seem to have factored in a change of government, a change which could bring a positive new focus on the development sector, in particular.
The signs are positive but as ever we remain “hostages to fortune” in respect of macro-economic threats. Energy prices have been falling but volatility in global energy prices remains a threat, one that’s come into even sharper focus with the actions of Houthi rebels in the Red Sea and the dreadful ongoing conflict in Gaza.
It would be a brave man that predicts serene progress in 2024 but the landscape is looking more promising than it was 12 months ago. Whatever happens however, it seems likely that the specialist finance industry will navigate a path through any challenges with its usual dynamism and agility. Change will be embraced, innovative solutions found and even if the sector is a little leaner by the year end it, will be fitter...
