Now is the time for professionals like ourselves to keep a calm head. Our clients need us more than ever and we need to work together with lenders to ensure that panic does not spread when the reality is not so bleak. After all, with every crisis comes opportunity.
It is true that things could get worse before they get better and if the current Libor margin remains, a number of lenders’ positions could become difficult.
Northern Rock identified potential issues and asked the Bank of England for an emergency loan if it should need it. This seemed a sensible response and should not have been a reason to panic. After all, Northern Rock is one of the most profitable banks of its size and although this will hit its profits in the short term and no doubt make it a takeover target, I would not normally expect it to disappear overnight.
The fact that the Bank of England is prepared to make emergency loans shows it believes this is a short-term situation. It would not lend to anyone it did not have faith in.
It is interesting to note the number of experts who are looking at Northern Rock and saying: “I told you so”. There seems little sympathy for following what some refer to a one-dimensional business strategy. Other lenders diversified but Northern Rock allegedly did not have a Plan B.
Ironically, this was all to do with its reliance on its borrowing rather than its lending strategy. The underwriting process it follows is diligent, sensible and much tighter than might outwardly appear.
The issue that damaged Northern Rock was the panic bought on by a hungry press pack. What would have happened if every saver decided to withdraw their money and shares continued to fall is speculation. If the Bank of England had not stepped in – and there are many out there who argue that it should not have – it would have been hard to see the Northern Rock brand surviving in its present state. Either way, we should spare a thought for the hard-working and diligent staff that need our support at this time. It may not be long before they are bought out and the whole issue should be a sombre lesson to us all.
The key response needed from brokers is to calm people’s fears and not to panic. We are now entering the US reporting season, with the top investment banks all due to report quarterly earnings. The hope is that, even if the news is bad, once people start to see where the losses are, the uncertainty will start to be less of a concern, which will begin to free up credit markets. It is the unknown that is causing most of the issues.
There will be opportunities for us all if we appear calm, knowledgeable and professional. Buy-to-let investors are historically strong in these types of market conditions as they feel they can get better deals on properties and higher rents, so should be largely unaffected.
The main positive is that this crisis has effectively seen the end of future short-term rises in the base rate, which may even be cut, especially as inflation has fallen slightly. Tracker rates should be a good bet over the next couple of years and we have also seen some cuts in fixed rates.
Margins may increase but the base rate is likely to fall and, ironically, the mortgage market – and particularly a broker’s influence within it – remains important. I feel fine and so should you.
Andrew Montlake is a partner at Cobalt Capital