It is no understatement to suggest that the market is gripped in a ‘troublesome storm.’
The worldwide funding crisis was exacerbated this week with the announcement that Bear Stearns was sold to JP Morgan, at just $2 a share – valuing the organisation at less than Beckham earns at LA Galaxy.
With this in mind, it is no surprise that the market is experiencing jitters.
Combine this with the ongoing issues of securitisation and funding and it is understandable why borrowers and investors who were once keen on property as a suitable investment have taken a step back.
Commercial problems
Just last week it was revealed that a number of firms in the commercial sector had experienced funding problems that would further hinder the market.
Base Commercial conceded that it was unable to accept any new business registrations as a result of business volume levels which had increased rapidly over recent weeks as other lenders pulled their ranges.
Announcing the decision to temporarily halt new registrations, Mark Stephens, chief executive at Base Commercial, said: “The recent reduction in the availability of mortgage products in the commercial finance market has resulted in Base being inundated with new business enquiries.
"We had to act decisively or run the risk of being overwhelmed by new business.”
A number of small building societies also confirmed that they had been forced to rein in their lending, and speaking to the BBC, Adrian Coles, director-general at the Building Socieites Association, confirmed that this would have been as a result of the funding crisis affecting the larger institutions.
He said: “The smaller building societies which have a very prudent business model and which are not raising money from the wholesale markets can find a load of business suddenly coming their way at an hour’s notice.”
You are not prepared
But should lenders be more prepared for these situations, especially in the current climate? Certainly brokers feel that the notice periods of lenders have become almost non-existent and a number of intermediaries have suggested that lenders were seeking excuses in the current conditions, rather than opportunities.
Hugh Nichols, partner at Badbury Berkeley Financial Services, says: “I can sympathise with lenders if all of the business is being placed with them, but even in the current climate lenders should have contingency plans in place to deal with increases in demand and business levels.
The current situation is distorting the marketplace and the Financial Services Authority needs to ensure that there is still competition in the market.”
He adds: “It is hard because lenders to an extent should be congratulated for making sure that the market is more stable, but at the same time, under ‘Treating Customers Fairly’ surely lenders should have more of a commitment? If the products were okay two months ago, what makes them less so now?”
Of course, the liquidity crisis has caught everyone by surprise and brokers and lenders are, to an extent, having to be reactive, rather than being proactive in their approach to the market.
Brokers can only source from what is in front of them, while lenders will be forced to adjust to the changing environment; but at the same time proactive lenders have the opportunity – if funding can be secured – to ‘make hay while the sun shines.’ However, it seems that few have taken the decision to commit to this route as the uncertainty continues.
Adjusting levels
Of course, many lenders only have a set tranche from which to lend; but in the current climate is there any option for this figure to be re-adjusted?
Matthew Wyles, executive director of non-retail at Nationwide, says: “We have been extremely controlled about the volumes of business we have written since the credit crunch began, and do not believe our service standards have suffered. We remain fully in control of the resultant delivery to the market.”
With lenders also being accused of short-notice product withdrawals it has also been suggested that lenders should have an idea as to expected business levels and be able to act accordingly.
Denise Harvey, mortgage analyst at moneyfacts.co.uk, said: “Larger institutions, especially banks, are not offering the most competitive products. Failure to find enough funding could be one reason, but reliance on their brand name and our loyalty has to play a part.”
Responsible lending is undoubtedly a key point in the ongoing saga of placing competitive deals and lenders have to have the funding in place to offer competitive deals.
But perhaps the only certainty is not to expect too much. With the regulator claiming that is sees no end in sight to the current storm it is a case of doing what you can.
