He urges changes to ensure funding solution's reputation for fast completions
As bridging becomes more mainstream, the industry needs to make changes, urges leading broker Bob Singh (pictured), and live up to its promise of fast turnaround lending solutions.
Singh, director of Chess Mortgages, has raised the issue after waiting six weeks, he suggests, for a valuation on a bridging application. “There is an issue within the industry and one that requires discourse,” he said. “Bridging is dressed up to be a silver bullet with magical powers, soft touch underwriting and lightning fast completions - it's anything but. I have recently experienced inexplicable delays which have placed my client in a very vulnerable position.”
Delays can have a poor knock on effect for advisers, Singh notes. “Clients will not want to hear the excuses or reasons for the delays,” he said. “Brokers get judged on how we execute a deal. Only then will we, or the lender, get repeat business. Most lenders will operate a panel for lawyers and valuers. The majority are super-efficient and charge accordingly. Some, on the other hand, leave a lot to be desired. Service level agreements are often breached and not enforced rigidly enough to send the right message. The lender’s reputation is at stake if the service partners do not perform as expected.
“Lenders funded by institutions have zero discretion to lend on anything outside the prescribed parameters. The private lenders, although a few bps dearer, do have the discretion to take a risk-based approach and exercise some flexibility and offer better speed. The more streamlined lenders now have AVMs in place to reduce valuation delays as well as have in-house legals.”
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The risk for brokers
Bridging comes with additional pressures for advisers, Singh suggests. “For most brokers, bridging will typically represent a small but lucrative part of their business, but it is the risky end and one that places a great deal of responsibility on the broker to get it right first time,” he commented. “The skill and care these loans need cannot be emphasised enough. Whilst bridging is unregulated it must be dealt with carefully as these transactions are often time critical. A well packaged case can save hours of questions and answers. Many good brokers treat them as regulated cases, from a paperwork and compliance perspective.”
He continued: “One thing I would like to see changing is moving away from issuing terms for speed sake and instead do credit-backed terms. The underwriting can and should be done pre-terms so it's just the valuation and legals left to do. Far too many lenders issue terms, get the valuation and legals fees paid and then underwrite. At this stage, the client is stuck and loses out if the case is declined. A comprehensive paper or on-line application process and documentation list should assist the underwriters to make a fast decision.”
Furthermore, Singh points to ‘horror stories’ of clients taking highly-geared loans with no exit plan or possibility. “Many lenders will ask for an exit strategy and seek proof of re-finance but many don't,” he observed. “The real returns for the lenders are in the default interest rates and renewal fees. Someone who borrows 75% at the outset, has little choice but to sell quickly or hand the keys back because when the receivers get appointed its often ‘game over’ as further fees are added - 65% is a sensible LTV, which builds in a margin for a re-bridge if things go wrong.”
For brokers who are in this market, Singh acknowledges, it makes sense to deploy sourcing software so that lender choice is well-reasoned, backed by personal experiences on previous cases. “It's impossible to spread business across all lenders but it is a good idea to meet the lenders and make connections and learn their underwriting,” he said. “With hundreds of bridging lenders, it's difficult to connect and feed them all with business. The private lenders need to go on a PR offensive and match pricing to attract quality business.” Summing up, he added: “Let's hope the whole industry can change for the better.”
Vic Jannels, CEO of the market’s representative body, the Bridging & Development Lenders Association (BDLA), points out that it recognises the importance of promoting transparency, professionalism and high standards. “That’s precisely why we already have a comprehensive Code of Conduct in place - one that every lender member must not only agree to, but also actively comply with,” Jannels said. “This is not a box-ticking exercise. The BDLA monitors adherence to this code and reserves the right to investigate complaints, enforce disciplinary measures, and, if necessary, remove members who fall short of our standards.
“Our Code sets out clear expectations on everything from upfront disclosure of terms, fair treatment of customers, and responsible advertising, to the prompt handling of complaints and avoidance of excessive fees. In a sector that continues to grow and professionalise, brokers should look to work with BDLA members, confident that they are dealing with lenders committed to doing things the right way. And to any lenders not yet with us - join the BDLA and show that you’re part of the movement to uphold best practice in bridging and development finance.”
