As new and existing lenders and professional service providers to the short-term industry continue to diversify their product range to offer bridging products, a number of concerns have been raised amongst the broker community about their competence in such a niche, complex area of finance.
Some lenders and other parties involved in completing a deal remain largely unfamiliar with the way the industry operates, attracted primarily by the potential to make a ‘quick buck’. In such instances, what some claim to offer on paper may not be reflective of the service they really can provide.
Not only this, but increasing mainstream press coverage about bridging has also begun to attract applicants who may be unsuitable for this type of finance, creating a significant time-consuming stumbling block.
There have been many occasions where lenders have voiced their dissatisfaction with how and when brokers submit information, suggesting a lack of sufficient communication or professionalism on the broker’s behalf. However, our initial investigations found that lenders often present their requests for information in an inconsistent or unclear format or third parties involved can be a significant obstruction. It is with this in mind that B&C spoke to the broker community to provide a forum to voice their concerns…
Ken D’Cruz, Owner of The Money Man brokerage, told us that, “some lenders are much more transparent in their disclosure of fees in the indicative terms and some documents may not be as easy to understand for a client, which can often slow down the process.”
Information requirements can also differ, as Steven McColl, Partner at Soho Corporate, explained: “Most of our funders are ‘all-status’, so documents like bank statements are not required. These kinds of funders will lend against the strength of the underlying property asset.”
James Harries, Sales Director at Manor Mortgages, told us that lenders tend to differ in the approach they take to self-employed clients. He said: “How lenders assess income and affordability varies enormously. Some insist on accounts, others still refuse to accept SA302s. The market is evolving and clients need broker support more than ever.”
Further highlighting that the processes are rarely consistent, Keith Forster, Managing Director of Property Finance and Development, added: “Some I feel ‘shoot from the hip’ whilst others are very astute, and these are my preferred lenders.”
Steven McColl told us that, “Bridging is a ‘cast the net wide’ industry – you have to quote a lot of deals to land the fish. Once a deal progresses from DIP to valuation, the odds swing in your favour. You probably have a 60/40 hit rate at that stage in favour of the deal completing. I would say that you have to issue ten DIPs for every completion.”
Offering similar estimates, Keith Forster said that from enquiry to completion success rates are quite low but from a lender’s application to completion, probably one in three. The problem at the enquiry stage is likely to lie within the client’s unsuitability for bridging finance, with very few lenders willing to lend in the specific circumstances.
However, Richard Martin, Business Finance and Mortgage Specialist at F1 Finance, drew our attention to another reason a deal may fall flat. He told us that, on rare occasions, lenders may pull out of a deal even after pursuing the application, which “often depends on how much funding they actually have available.”
There appears to be an overwhelming consensus amongst the broker community that legal firms or overestimated valuations provide the most common stumbling block in a bridging deal, but why?
Ken D’Cruz offered his thoughts: “The main weakness is that they see it as a dangerous product, but this is due to a lack of knowledge. We have been involved with cases where the solicitor has advised their client that a bridging loan is not the best option for them because it is expensive, regardless of if their client is pursuing the loan.
“From a broker’s and lender’s point of view, good money can be earned from a deal but solicitors will often earn the same for this finance as for mainstream mortgages so are less motivated to move quickly.”
Yet Arron Bardoe, Director at Temple Capital Finance Ltd, said that not only do the clients fail to respond quickly but the lender’s solicitor may not always ask the standard questions at the outset.
Andrew Hosford, broker at Voltaire Financial, suggests another potential hurdle brokers are often faced with: “The valuation not stacking up and slight variations of the truth from the client are the main stumbling blocks. The borrower perceives their credit history to be a concern – they are often reluctant to admit that they have a chequered past, which can kill the deal but if they were upfront about any issues we may be able to work around them.”
He continued: “There is sometimes a sizeable gap between what the client believes the property to be worth, which is how we will initially structure the deal, and the valuation for the lender. So the LTV will change, which could alter dramatically or even kill the deal.”
Many brokers will only deal with a select few lenders as they are familiar with their requirements and processes. Existing relationships present a lucrative stream of business in bridging, the brokers we spoke to explained.
Steve McColl agreed that established relationships means as a broker they are able to manage a clients’ expectations in terms of turn-around time, yet he stressed: “Some funders are slower than others, but sometimes the ‘slower lender’ is the better option for the client in terms of the overall package; I find as long as you are upfront with the client about the process and the timings involved they will be happy and work through the requirements with you.”
Similarly, Andrew Hosford said: “The relationships that we have can play a part. You get an understanding for how specific lenders operate and the way that they like deals and information presented of course, but ultimately it comes down to the quality of the deal.”
Richard Martin and Ken D’Cruz both told us that they don’t limit themselves to particular lenders and will compare the responses to offer their client the best rate, which will demonstrate to the client that they have researched the options available thoroughly.
What brokers want
Leaving us with their lasting thoughts, the brokers we spoke seemed to agree that commissions were not the driving force behind a deal. Steve McColl said: “Fee-wise, it is usually much of a muchness because if a fee is obtained via a proc fee or broker, the same ballpark figure is usually achieved. In my mind, it is more about finding the right funding partner for a client rather than commissions.”
Similarly, Ken D’Cruz offered his thoughts on the crux of the issue: “It is not turnaround time or service but about getting the deal done, which is about communication throughout the deal. Our interest is ensuring the client is properly informed to ensure the deal completes – we only earn our fee upon completion so the driving force for us has to be the commitment the lender has to the deal.”
And so, it would appear that consistency is what is needed from lenders. Fees are, to an extent, irrelevant and instead being able to deliver lenders delivering on promises is what is of vital importance to maintain their relationships with their clients. Very few brokers expect to receive ‘headline’ rates, which are there primarily to attract business. Instead, the ability to pay out on the deal is at the forefront of broker concern.