Why it’s worth capitalising on credit during COVID-19

By Grace Ormsby

May 19 2020
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Noting the opportunities for investors that arose out of the GFC, an investment manager is lauding the non-bank lending sector as a suitable option for individuals looking to capitalise on the COVID-19-crippled economy.

Speaking on an upcoming episode of nestegg’s Meet the Manager series, Mayfair 101’s managing director, James Mawhinney, said the current situation “is a great opportunity for a lot of investors to potentially reposition their portfolio more towards those organisations that are focused in the non-bank lending space”.

“There’s definitely going to be a lot of big opportunities in there for the foreseeable future,” he predicted.

Explaining why, Mr Mawhinney said that when the GFC did hit, “one of the first things that happened was the banks were forced to tighten their lending policies”.

“That obviously opened up significant opportunities in the non-bank lending space,” he continued.

“If you fast-forward to where we are in 2020, interest rates are at historic lows: I’d suggest with all the new money that’s being pumped into the economy, there will be an oversupply of cash.”

According to the managing director, it is the oversupply of money that is “ultimately really driving down interest rates”.

“We’ve already seen interest rates go negative over in various European Union countries, and I think that now the government is pumping even more cash into the economy, there’s a high probability that interest rates will go even lower.”

As a result of banks stepping away from lending and interest rates dropping, Mr Mawhinney has predicted that “what that’s ultimately going to do is that there’s obviously going to be a much bigger margin in there now for the non-bank lending space to really take off.”

With the value of mortgages that have now been deferred “in the vicinity of $200 billion”, banks will be “licking their wounds a bit off the back of the COVID-19 crisis”, he added.

The managing director is of the belief that the non-bank lending space “is really going to take off, simply because the credit gap is just going to continue to get bigger”.

“There’s about an $80 billion credit gap in Australia pre-COVID. I hate to think what that credit gap is now in Australia, let alone other countries.”

Overall, Mr Mawhinney believes the overriding principle to combat against events like what we are experiencing with COVID-19 is the “age-old” principles of diversification.

“The real key to weathering an economic crisis such as COVID-19 is to make sure the investment strategy of the individual investor, let alone those that they choose to invest with, is heavily diversified,” he advised.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

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