There’s a lot of nervousness in the market at the moment. Property is proving difficult and time-consuming to sell, valuers are increasingly nervous on new lending, lenders are more cautious around LTV and recoveries are taking longer.
Against that backdrop, many lenders are finding decisions harder to make.
But difficult decisions still have to be made and, in an uncertain market, the ability to make them quickly, robustly and with the benefit of experience becomes more important.
We are, today, experiencing the consequences of lending decisions made one or two years ago, when the market was very different. Professional negligence cases against lawyers and valuers are on the rise – a very clear indicator of general property market downturn. A year or two ago securities were accepted in a more optimistic environment and competition meant lenders were prepared to take a commercial view and push the boundaries of flexibility.
There is nothing wrong with commerciality. It’s what specialist lending does very well.
However, many properties now realised seemingly include associated issues. In a rising market, those issues are easier accommodate because buyers are more forgiving. In a flat or reducing market, where buyers have greater choice, they are not.
Particular issues with larger development loans are arising, where developers are struggling with increased costs, timings and the availability of labour and materials. These pressures create their own challenges for lenders, where projects take longer to complete and the original assumptions underpinning the loan no longer hold.
Recovery is also taking longer and, for some lenders, that’s putting pressure on liquidity. All of this makes people nervous, but the problem is that nervousness hampers decision making – and delay has a cost.
We recently acted on a matter where a prior mortgagee was delaying progress, nervous about incurring cost and decision-making, or non-decision-making, on the basis of “things can only get better” .
Inactivity, even for three or four weeks has a cost.
Timing can dramatically alter the financial outcome of a recovery. The process can only ever be as quick as the slowest part of the chain in the decision-making process.
I’ve spoken a lot about experience over the years, but markets like this are where its value really shows, because experience gives you the confidence to be decisive. If that experience does not exist internally, outsource it. That’s not taking on cost for the sake of it; it’s mitigating risk.
There’s another factor: AI. It’s a tremendous tool, but it has created a dangerous assumption that everybody can find the answer to everything without speaking to a lawyer. In many respects, AI is a super Google. It can give you information very quickly, but it can’t give you the experience and judgement to know what to do with that information. That comes from understanding how situations play out in practice and knowing how to craft a strategy focused on one thing – the best outcome.
There is, however, a positive.
Whilst lots of things have changed in the property market – transactions, valuations and risk appetite – the legal process has not.
There may be more delays, more defences and more protracted timelines, but the fundamentals remain the same. The process is established and the results we’re seeing show no down-turn. What’s become more important is how people work within that process.
Human relationships matter enormously in markets like this. You need people you trust; people who will take the call, give you a clear view and, when necessary, tell you what you need to hear rather than what you want to hear.
The best relationships are motivated relationships, where lenders and their advisers are focused on the same thing: achieving the best possible outcome, working together. But that shared purpose can easily be undermined when the focus shifts to cutting cost or decisions are allowed to drift. In a market like this, there’s real value in having experienced people around the table who trust each other and are motivated to get the right result.
There’s plenty in this market that lenders can’t control. But they can control the quality of the people around them, the quality of the decisions they make and the speed with which they make them.
In an uncertain environment, those things matter more than ever.
