Credit trends: The need for bespoke lending solutions

    The world of work is evolving …

    In recent years, we have seen a surge in demand for flexible credit solutions.

    The traditional salary we are used to receiving has changed, driven by more liberalised economies, loosened employment regulation and a shift in power back to the labour market. Additionally, it is increasingly easier for people to take on part-time or freelance contracts; giving rise to more entrepreneurs, influencers and social media stars to name a few.

    As such, people are increasingly requiring bespoke credit solutions based upon their specific, often complicated, circumstances.

    Jeremy Hill, senior private banker Kleinwort Hambros

    The shift toward DIY products

    At the same time, finding these solutions has become harder to come by, as banks’ offerings have digitised, standardised and automated. This has moved the proposition towards self-service ‘products’ rather than personalised ‘solutions’. Equally, having moved to an online model which encourages individuals to apply for credit themselves, banks have excluded individuals that do not fit into simple, ‘drop-down’ categories, and often shy away from the regulatory complexity that serving them entails.

    The economic backdrop

    While changes to the world of work have partly driven this demand for flexible credit, and automation has reduced the supply of such personalised solutions, the economic context has also had an influence.

    We have experienced an extended period of low interest rates, which has made borrowing more attractive. During the same period, we have seen continued appreciation in many asset values, with an enduring rally in equity markets. This combination of events provides an opportunity.

    While ‘credit’ is often seen as relating to a specific long-term venture, such as a mortgage, we think that borrowing can be an efficient alternative to unlocking cash from other assets.

    For example, you may have an investment portfolio that has performed well, but now need cash – this is often taken as a justification to disrupt the investment strategy by selling. Why not maintain the portfolio strategy while unlocking cash with a personalised credit solution? In this context, credit provides a tactical opportunity – bringing efficiency and adding personalised value, rather than being an unfortunate burden or generational incumbency. It might be with a one year time horizon or five year, or even on-demand – but it is important to get acquainted with credit in this context, rather than assuming the fixed periods and rigid constraints of a mortgage or conventional loan.

    With the need for flexible solutions greater than ever, we are proud to provide a service and range of true solutions that are totally based on the unique circumstances of each client.

    Case study

    Inheritance planning is an event which, of course, requires a careful, tailored approach. The son of a client of ours had started a business which was promising but not yet profitable. Fortunately, he had a sizeable inheritance; however, this was set to be realised in the distant future, and he wanted to use his own wealth to support his company, as well as buy a property. Despite the incoming inheritance, he struggled to get a mortgage and was quoted prohibitive rates, which did not consider the fuller picture of his and his family’s finances.

    We were therefore confronted by two problems: first, the son wanted the money to develop his business in the short-term; second, his father was concerned about the value and complicated tax liabilities the inheritance would be subject to. We created an arrangement whereby the father was able to raise financing from his investment portfolio and a property which he owned to underwrite a loan to his son; his son was then the beneficiary of the loan at a rate agreed by him and his father, allowing him a repayment strategy that fitted with his objectives.