The UK finance market may have turned a corner, but don’t assume that we’re about to face another crash. The factors that contributed to the global financial crash eight years ago – exceptionally high loan-to-values and debt-financed speculative development, to take just two examples – are largely absent from the current market and the approach of most borrowers and lenders is one of moderation.

This change in attitude is thrown into stark relief when you consider the results of a 2007 De Montfort University survey of lenders, which found that 64 per cent thought an 80 per cent loan-to-value ratio was ‘no risk’. Ask the same question today and the answer you’re likely to get is the exact opposite. 

In addition, the market has become increasingly balanced, thanks to regulatory reform which has encouraged new alternative lenders from a diverse range of backgrounds to enter. Borrowing from these new lenders may cost more than the traditional clearing banks, but they make up for it with a speedier and often more efficient decision making process. As such they are set to increase their market share from 9 per cent to 13 per cent by the end of the year, lending approximately £7.5 billion. Nonetheless, the clearing banks are still the market’s largest source of finance, transacting a 34 per cent share of the market in 2015.  

That’s not to say that there aren’t issues in the market. While loan-to-value ratios have decreased over the course of the past year, they do rise to beyond the 80 per cent level if mezzanine finance is included. While the Bank of England keeps the base rate at a record low, and the cost of borrowing remains cheap, this isn’t so much of a concern. The danger comes if there is a rise in rates which could make this debt unaffordable. While the reality is that rates are likely to rise slowly, organisations that have based their business plans on the assumption that today’s low-cost environment will continue forever may still find it difficult to service a higher level of debt.

Looking at the long-term economic cycle, which tends to run 15 years from trough to peak, and taking 2009 as the low point of the last cycle, we’re predicting that, all being well, the next low will not come within the next five years. That being said, there are always unforeseeable factors that could destabilised the party.

Take, for example, the blip in the market in 2001 caused by Enron, WorldCom and 9/11. We are older and wiser today than we were in 2007, and have generally exercised more caution about how we borrow and lend money, but ultimately you would be unwise to take anything for granted in today's global economy.

Further information

Read the full Savills report: Finance market may have peaked but no crash forecast