The T20 world cup is being played at the moment and it occurred to me that if you are in wholesale funded mortgage lending, you might have some empathy with the white ball in this brutal game. Rates went up again last week – ratcheting up the agony of lenders and borrowers in equal measure.
You do not need acute listening skills to hear the unmistakeable sound of the gears turning through the credit cycle. And you would have to be nothing short of tone deaf to hear the mood music of panic it is inspiring in several places.
Indeed, over the last few days the only upbeat (I use that word advisedly) commentary on a cut in interest rates was reported in the FT who relayed that the Bank of America found a potential ray of light in its latest Global Fund Manager Survey.
A growing minority of respondents (28%) expected a rate cut from the Fed saying short-term rates will be lower by this time next year.
This was a much higher proportion than in the previous September survey. The most popular vote for when the Fed will stop tightening has come forward to the first quarter of next year.
In part, this change of heart, is about a growing sentiment that inflation is tapering but a new entry on the list of reasons to resist rising interest rates was… a global credit event! Â
It’s enough to curl your blood (it is also the season of Halloween after all) but all of this chaos is not good news for those serving in niches with funding restrictions and competition for their access to global finance from other asset groups in other geographies.
That problem is particularly acute in markets such as Equity Release where global capital from insurers can up sticks very quickly if margins are not attractive enough.  Â
Being able to scale quickly to meet not only funding challenges but also regulatory ones (Consumer Duty applies to arrears as well as origination).
Cash is always the most important thing in any business but minding it when you’re running costs for the expensive and experienced people in a subscale equity funded new business are escalating because of a buoyant job market and cost-of-living crisis is tricky.
Not to mention being able to keep the lid on the costs of implementing and maintaining regulation with limited scale, volume, and resources. Â
In truth, many parts of the servicing operation that have been neglected over the last 15 years are now likely to be tested. As we move through the credit cycle, options for many will be sparse.
There are solutions out there but not everyone will be able to take advantage of them as they deal with the double whammy of equity capital drying up and having to tighten or withdraw from offering mortgages based on wholesale credit. Â
For many the objective is clearly not to give away your wicket when the pitch is difficult but build a partnership that can get you through the difficult overs – we know how to do that.Â
Mark Davies is managing director of BCMGlobal
