Following the Brexit vote, Tiger Financial investigates the aftermath
Waking up on the morning of the 24th of June, it is fair to say that most of us in the financial sector were expecting a different result. As has happened in the past, “normal” voter behaviour suggested a last minute swing to “better the devil you know” and a vote to remain in the European Union. How wrong we were….
The short term effect on the debt markets has been dramatic. The weekend after the vote saw a flurry of frantic calls and urgent board meetings, with the decision taken by most bridging loan lenders to freeze their funding lines pending further market analysis. This collective intake of breath and sitting on hands, has meant the deal flow in the bridging loan sector has markedly reduced, with a number of deals at the cusp of completion, being stalled in the lawyer’s office.
We believe this defensive reaction by the industry is normal and was to be expected. As has already been seen in the financial press, the so called “Armageddon” effects of Brexit have yet to materialise, with a number of countries lining up to do business with the UK. While there is a softening in some areas of the economy, a number of housebuilders are posting continued strong interest in new homes, and there appears to be no let up of mortgage enquiries within the residential sector.
However, we do note there is still some uncertainty with the commercial sector. We believe this area, especially with the larger commercial deals, will remain uncertain until the full terms of the divorce from the EU is clear.
Now that the economy appears to be slowly inching back from the economic cliff, there are green shoots of hope that things will start to move back to normality. With the recent intervention by the Bank of England to reduce interest rates to an all time low, and a threat by some of the major banks to introduce negative interests rates on businesses holding large cash deposits; we believe that the bridging finance sector will start to recover, sooner rather than later. After the August hiatus, we believe deal flow will still be somewhat depressed, with completions restricted to better quality deals in good locations at lower LTV’s. However, come the new year, save for any new and particularly negative economic news, we expect the market to make a positive turn for the better, especially in the residential sector.
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