Dear clients, friends and colleagues,
I hope this email finds you and your families and friends in good health in these challenging times.
I would like to update you on the position of Sancus in relation to the ongoing heath pandemic and resultant financial crisis.
Whilst I do not want to inundate our clients with newsletters from Sancus, given the unprecedented times, we will issue a monthly newsletter focussing on the key issues that we are witnessing and affecting our business.
This will be our first monthly update, future updates will follow at the end of each month until we are through the worse of this crisis.
As you may have read in recent press, a growing number of construction companies are now saying that they shall stop all but essential work to help fight the coronavirus. This, as well as all other events currently occurring across the world have major impacts on economies and businesses in every sector.
Despite the current environment, we are still receiving funding enquiries and referrals from our broker network and other intermediaries. However, as Co-Funders, I am sure that your primary concern will be how we are managing our current loan portfolio, with all the new challenges we face, and how this may impact the Borrower’s ability to repay the loan on maturity.
Sancus operates across multiple jurisdictions and government regulations vary in each but I am using the UK as the primary example of how our business may be affected.
Construction and Building maintenance industries
As at 25th March the UK Government advised that those working onsite in England can continue to do so, with relevant self-distancing restrictions in place. However, our current understanding is that the majority of major house builders have already closed their sites.
In Scotland, the First Minister Nicola Sturgeon has said building sites should close unless they involve an essential building such as a hospital.
This is a rapidly changing situation and is expected to change. See here for further details from RICS (Royal Institution of Chartered Surveyors)
Delays in property transactions
As of 26th March, the UK government halted the housing market as financial institutions have stated that they can no longer operate properly. See here for full details.
This has implications for the sale of homes, and delays on exchange of contracts shall be seen in cases of non-vacant possession, as the government advises that exchange of contracts be delayed until after the period of “stay-at-home” measures have been removed. Currently there is no indication of when this shall be.
A review of the residential property market by Savills which was published on 16th March reflects their view of the market at that time. Of course, this view may change as the situation develops and the policy response becomes clearer.
Savills summarise that there will be more caution in the market place until global stock markets stabilise, practical impact on buyers’ and sellers’ ability to transact and the impact on the economy of property affordability. They believe that a short, sharp recession is currently the worst-case scenario but the perceived security of a bricks-and-mortar investment in times of uncertainty should help to underpin values.
Savills, at this stage are standing by their five-year forecasts, even if the pattern of price movements from year to year is less certain.
They foresee market demand becoming more dependent on needs-based and opportunistic buyers.
Monitoring Surveyors and RICS Valuers
Current government guidelines (as at 27/03/20) are that surveyors and valuers should not carry out non-urgent surveys and no inspections should take place if any person in the property is showing symptoms, self-isolating or being shielded.
Although some work may be carried out remotely, this clearly has implications for new loans where we need full independent surveys and the on-going monitoring of current loans to ensure that any works are proceeding on time and as agreed.
Delay in projects completing on time
Due to current and potential operational issues in the construction industry and the restrictions on the movements of Surveyors and Valuers there will certainly be delays on the completion of developments currently in progress and the potential for extension of these loans must be considered.
Interest servicing may be delayed
Although we have only had 2 requests for delayed interest payments due to Covid-19, we must be prepared for more Borrowers to engage with us in this regard. We will judge each case on its merits and refer to the affected Co-Funders with our recommendation.
As a business we remain very close to the companies and individuals that borrow from us and as such our on-going dialogue will give us some preparedness for this occurring.
Default interest being waived on loans that require short-term extensions
We would like to support our Borrowers as much as we can during this period and we shall be looking to waive default interest on short term extensions that have been caused by the current pandemic. This will allow them time without undue pressure to either refinance their loans with traditional lenders or sell properties depending on their agreed exit strategies. Again we will liaise directly with Co-Funders who may be affected.
How are Sancus stress testing their loan portfolio?
Sancus has taken a very simple approach to assessing its loan portfolio’s ability to perform under the current and unprecedented Coronavirus COVID-19 pressure that we are facing globally.
We have kept our focus on a Borrower’s Loan to Value (LTV). We have tested this is two ways:
- Taking a discount on the valuation of the security;
- Projecting forward any delay and the impact this has on the accrued interest on roll up loans.
There are other sensitivity indicators, we can and do consider and monitor, but these two metrics are the most important in terms of the loan being able to repay in due course.
We are all dealing with huge uncertainty about the future and what it holds for us, not only as global economies and businesses, but also as individuals and for the wellbeing of our family and friends.
As we cope with this pandemic together, I want to assure you that this is a shared journey for us all. We remain committed to our Co-Funders and Borrowers and the most important thing for us is to remain calm and support each other as much as possible through this unprecedented time in our history.
As all Sancus staff are now working from home, if you could please email us if you have a query in the first instance and we shall call you back if required, all staff details can be found here.
If Sancus can do anything to support you over the coming months, please do not hesitate to contact me, your relationship manger or any other members of the Team.
In the words of Muhammad Ali, “Don’t count the days, make the days count.”
Our thoughts are with you all at this time.
Please keep safe.
CEO, The Sancus Group