Proposals issued to the Bank of England and HM Treasury could assist Specialist Lenders during the Coronavirus pandemic

Specialist lenders are typically non-bank lenders, meaning that they do not receive funding from the Bank of England and they raise the capital needed from the various capital markets around the world. Since the Coronavirus pandemic, specialist lenders have felt the strain as the capital markets have closed, essentially cutting off their funding supply. Yet at the same time the Government has enforced mortgage payment holidays for customers.

As the Coronavirus pandemic grows the funding support for specialist lenders diminished. Unlike high street lenders, they cannot receive financial assistance from the Government or the Bank of England and in order to maintain capital and several specialist lenders have had to withdraw products from the market to survive.

This is particularly concerning as the specialist lending customer has changed over the last few years. Yes, there is still a large share of limited company and special purchase vehicle lending but a wider customer base is now using specialist lenders including those who are self-employed, have poorer credit ratings or defaults and customers with lower incomes. All of whom would typically not be offered a mortgage with a high street lender.

The proposals submitted to the Government and the Bank of England are intended to offer specialist lenders the same capital and liquidity support already offered to high street lenders. The proposals are:

1. A term-funding scheme open to non-bank specialist lenders, funded by the purchase of investment-grade bonds by the Bank of England and supported by bank guarantees to support wholesale funders.
2. A Forbearance Liquidity Funding Scheme which proposes that the UK Government provides eligible specialist lenders with the liquidity required to fund loans on which forbearance has been provided that would currently fall outside of existing funding lines.

There has been much discussion over the last few years about extending term-funding to specialist lenders, but it had not been implemented. The closure of the capital markets during the pandemic has reawakened the issue of financial support for specialist lenders.

Specialist lenders cater for a particular market which will need assistance more than ever following the pandemic and it is hoped that the proposals will begin to allow specialist lenders to reopen pipelines to assist customers during these difficult times.