The comment was made following a question in an exclusive interview with Development Finance Today on what he expected the sector to look like after Covid-19 with regard to competition and risk appetite.
Julian believed that a greater element of caution would creep in.
“I think those that have been careful in assessing their risk, those that have got good governance in place, would have proved beyond all doubt that the alternatives to high street lending are [sound] and justified.
“So, in short, there will be a very vicious shake up and the good will survive, and those that have sailed too close to the wind and been reckless, will not.”
He explained that, pre Covid-19, there were a lot of schemes which the association’s members were seeing forming part of loans which were “questionable” in terms of adequate risk assessment and viability, potentially as a result of competitive lending.
“Once you move into a sales-led lending culture, that tends to excessively fuel the property cycle and its volatility,” he explained.
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He claimed that some were not fully understanding or reading Red Book valuations — flicking to the executive summary is not enough.
DFT asked Julian which lenders would be better equipped at dealing with the Covid-19 situation.
“The lenders that have people on board who are experienced in real estate,” he answered.
“People still think that the value of property always goes up — it doesn’t.
“The property market is volatile, and when it folds, it folds spectacularly. It’s normally ‘cliff-edge stuff’.”
“Nobody can tell you what’s going to happen in the market next, no one has a crystal ball, and I think that the banks that have got people that have seen that before will be aware of it, and will recognise the risks and will recognise the problems as they start to arise.”