The 2008 recession vs COVID-19: why this time is different

In some ways, COVID-19 has shown the housing sector’s resilience and injected it with new vitality, so we should not let this optimism be clouded by the memory of 2008.

The 2008 recession vs COVID-19: why this time is different

Rob Barnard, director of intermediaries, Masthaven Bank

As a result of the coronavirus pandemic, news that the UK has plunged into the deepest recession since records began may not be surprising, but it still may cause alarm for those who remember the 2008 financial crisis.

It is important that we see these two crises as separate animals, however, and do not allow ourselves to get too caught up in the doom and gloom.

The mortgage and the short-term lending sector is already showing signs of recovery and the muscle memory of the previous recession will mean that we are better equipped to handle this one.

Reasons for optimism?

It can be hard to find reasons for optimism when watching the news at the moment. The word recession naturally induces fear; it evokes images of unemployment lines, graphs with plummeting red arrows and closed-down shops. For the financial services sector, there is also the memory of how severely impacted the property market was during the great recession.

Sadly, the UK’s latest economic statistics are not very reassuring either. In 2008, the economy contracted by no more than 1% each month, but in April 2020 alone, the UK economy shrank by 20.4%.

The good news, however, is that green shoots of recovery are already being seen across the economy. Rallying global stock markets and news that retail sales are now above pre-pandemic levels are also welcome signs that the economy is bouncing back.

In the mortgage market, statistics show that we are beginning to return to pre-COVID levels. According to Rightmove, July saw average asking prices hitting a record high in response to pent up demand as the UK emerged from lockdown.

As we look to the future, government measures such as the stamp duty holiday will continue to provide a welcome boost to the industry as more and more homebuyers look to take advantage of the incentive.

Will tech be our saving grace this time around?

The mortgage and short-term lending sector has also proved itself to be particularly adaptable amid the pandemic. For an industry that relies so heavily on face-to-face interactions and relationship building, the transition to near total digitisation has been a steep learning curve.

Video conferencing tools have been indispensable, with the vast majority of brokers and business development managers using this communication method to keep the market moving. This in turn has eliminated long commute times and reduced geographical limitations, freeing up brokers’ time and making processes more efficient.

Meanwhile, lenders have worked hard to develop automated valuation models when physical assessments have proved impossible. In addition, digital solutions such as Masthaven’s short-term

lending broker portal have enabled brokers to access quick quotes and instant Decisions in Principle throughout the coronavirus crisis.

Tools like these have not only accelerated the digitisation of a previously paperbound industry but have also demonstrated the value of this technology. Although some of these measures may be temporary, the adoption of new technology and the automation of key processes will only improve efficiency down the line and will be vital to the growth of the industry.

What trends have we seen?

Alongside the widescale changes in how the industry operates, we’re also seeing the emergence of several new trends post-lockdown.

At Masthaven, we have seen an uptick in bridging loans, for example, as brokers look to find loans that can be swiftly deployed to meet customers short-term financing needs.

As the impact of the economic recession begins to hit over the coming months, it is likely that more people will be looking for short-like lending options like these.

It is therefore vital for lenders to make sure that both customers and brokers are aware of the bridging and short-term loan options available to them in the uncertain times to come.

Whilst the pandemic has impacted everybody to some degree, certain sections of the population have felt this more keenly than others.

Self-employed workers, those who have been furloughed or who have taken mortgage payment holidays have undoubtedly been financially impacted by COVID-19.

Specialist lenders will be in a prime position to help these customers find tailored lending solutions for their situation and help them get access to the funding they need.

As the country returns to some form of normal, it will also be vital for those who do not meet high-street lending criteria to seek advice from mortgage brokers.

With their expertise and industry knowledge, brokers will be best placed to help these customers find the right financial solution for their circumstances and help them make informed financial decisions.

It’s been the watchword of the pandemic so far, but these times are indeed unprecedented. This crisis and subsequent recession are daunting, but the mortgage market is prepared with an arsenal of tried and tested strategies.

In some ways, COVID-19 has shown the housing sector’s resilience and injected it with new vitality, so we should not let this optimism be clouded by the memory of 2008.