COVID-19 Shows Why Specialist Finance is Here to Stay

The coronavirus pandemic has highlighted the significance of specialist finance in meeting the needs of homebuyers and property investors.

Paresh Raja, CEO of Market Financial Solutions

There’s no denying the impact that the COVID-19 pandemic has had on consumers, investors, and businesses. The sudden outbreak of coronavirus cases caught many off guard. As a result, drastic lockdown measures were introduced in an attempt to reduce the rate of infection. At the moment, it looks as though social distancing has had the desired effect. However, there are still significant challenges facing those who have been affected by the disruption caused by the coronavirus.

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Take the property market as an example. Following the introduction of lockdown measures, a large number of mortgage providers announced they would not be accepting new applications. For applications that were already being processed, some buyers were at risk of seeing their transaction fall through due to lenders taking longer than usual to deploy loans.

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Even with the Government easing the property industry’s lockdown restrictions on the 13th of May in England, there is still a degree of hesitancy from traditional lenders. Some are still not accepting new applications until greater certainty has returned to the market.

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Thankfully, the coronavirus pandemic has also highlighted the significance of specialist finance. Now, people are more aware of their presence in meeting the needs of homebuyers and property investors.  When access to the regular channels of financing is fraught, similar to how it was during the 2008 recession, the alternative financing industry has been there to support the market and deliver creative loan solutions for those at risk of seeing their deal fall through.

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The rise of alternative finance

The 2008 global financial crash (GFC) demonstrates how alternative lenders managed to evolve into established alternative financing avenues. Following the impetus of the GFC was the US sub-prime mortgage crash. Lenders became more fastidious in their mortgage application approval processes. Now adhering to stringent and rigid measures to reduce their risk exposure.

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Those interested in residential and commercial property purchases faced an archaic approval process when it came to applying for a loan. The big banks were simply not able to accommodate complex cases, lacking the expertise needed. With property deals at risk of falling through, buyers and brokers who represented them turned to alternative finance providers.

By using a bespoke, subjective approval process, alternative finance providers were able to judge each application on a case by case basis. Rather than adhering to a long and arduous box-ticking exercise, property investors became aware of the advantages that came with dealing with specialist finance lenders. The demand for such services and an influx of new lenders entering the market followed in the years following the GFC.  

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  • The subprime mortgage crisis was a worldwide financial crisis, occurring between 2007 and 2010, triggered by a large decline in US home prices after the collapse of a housing bubble, leading to mortgage delinquencies, foreclosures, and the devaluation of housing-related securities.
  • Declines in residential investment preceded the recession and were followed by reductions in household spending and then business investment. Spending reductions were more significant in areas with a combination of high household debt and larger housing price declines.

Supporting market demand for loans

While the GFC is a completely different crisis to COVID-19, some interesting parallels can be made. First off, the fact that mortgage providers have for the most part retreated from the market has meant that specialist finance lenders have once again stepped up to meet demand.

Their flexible and fast approach has been vital for those who have suffered delays from mortgage providers during this trying period. The virus outbreak is also consolidating the market. It is testing the capabilities of existing lenders who are, in turn, adapting their services to meet ever-changing conditions.

As such, we should expect more buyers and brokers to turn to specialist providers. This allows them to take advantage of their loan products and services in the coming months. They have once again risen to the challenges posed by COVID-19. This has been vital in protecting the needs of those stuck in the middle of a property transaction.

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Paresh Raja

Paresh Raja is the CEO of Market Financial Solutions – an independent bridging finance provider that arranges fast and flexible bridging to intermediaries and private clients.

“There’s no denying the impact that the COVID-19 pandemic has had on consumers, investors, and businesses. The sudden outbreak of coronavirus cases caught many off guard.”

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