Bridging has never been so popular. Those that predicted 2018, with all its economic and political uncertainty, would see the UK specialist lending market growing at a slower pace have proved to be very wide of the mark. From beginning to end the year has seen a steady flow of new short-term lenders being launched.
With interest rates remaining at historically low levels new entrants have been propelled to market on a wave of cash by capital holders seeking a more attractive return on their money. Third Party funders in the shape of private investors and family offices, hedge funds, challenger banks and even the average man in the street through peer to peer lending platforms have fuelled the continued growth of the market both in terms of the volumes of business being written and the sheer number and diversity of lenders.
Increased competition has driven rates down to levels that were unthinkable just three or four years ago whilst loan to value limits have slowly increased despite the backdrop of a very subdued and even in pockets declining property market. On the face of it this has to be great news for borrowers and, in many instances, it is but increased competition can also give rise to unintended consequences, consequences that can actually be detrimental to borrowers. What exactly does this mean?
For a sense of perspective when talking about bridging loans, it should always be remembered that they have an average duration that is counted in months rather than years. Whilst a 20bps (0.2%) reduction in the monthly rate on a 25 year term mortgage can equate to a very large saving over time, a similar reduction on the average bridging loan results in a tiny saving by comparison.
From the perspective of an investor who has acquired a property at auction and paid a substantial five figure deposit, getting funding in place within a short completion deadline is often far more important than any marginal saving in rate. A £1,500 saving over the term of a 9 month long bridging loan can be a false economy if, in pushing for this, you risk losing a £50,000 deposit by failing to get funding in time!
It is logical that the lowest rates are only offered to the highest quality borrowers and loan deals but with some lenders looking to build market share there is a tendency to ‘hook’ borrowers with a headline rate and then, during the processing of the loan, massage the rate upwards when ‘negative information comes to light’ regarding the client’s credit status.
In truth there is no reason why lenders cannot obtain a full background on the borrower and quote accurately on the day an enquiry is received. Some simply chose not to quote accurately taking a calculated gamble that the borrower, in a very time-constrained situation, will reluctantly accept a rate increase late in the day just to get their loan across the line.
It is clear then that cheap headline rates, a by-product of increased competition, are not always quite what they seem!
Another potential consequence of increased competition is that some new lenders think they can underwrite based on algorithms and automated procedures. There is a one-size-fits-all mentality which simply doesn’t work in a sector where deals are often extremely complex requiring the sort of ‘outside of the box’ thinking and tailored solutions that only highly experienced underwriters can provide. Rigid product offerings don’t work well in the bridging space.
Compounding the above, due to the rapid growth of the sector, it is now often the case that relatively junior underwriters and staff are being offered positions and levels of responsibility for which they are too inexperienced and ill-equipped to cope. Immediate contact with senior personnel is often the key to a successful outcome but this can be impossible with some newer lenders who just don’t have the strength in depth and knowledge within their Team.
In summary then it is naïve and ingenuous to focus purely on rates and LTVs, coming as they often do, in rigid less flexible product offerings. There is much more to making a good choice. Rate and LTV should always be balanced against a multitude of other factors including an ability to offer both conventional and unconventional solutions, access to senior decision makers from the start of the application process until the day the loan completes, autonomy to make decisions in house, certainty of funding and a consistent and above all decisive service.
Still unsure and need to explore your options? Why not consult an expert?
At Central Bridging we have been lending successfully for nearly 10 years. For over two decades before that we were a broker, a background which gives us a unique understanding of what exactly our introducers need and want. We don’t seek to compete head on with large institutional lenders offering superficially low rates, instead using our knowledge, experience and a sharp entrepreneurial focus to deliver exactly what clients want and within the time-scale they must adhere to.
We and are backed by an extremely diverse funding base with a mixture of private and institutional backers and offer a range of loan facilities for business use from £100K to £2.5M (more on an exceptional basis) over periods from 3 to 24 months. Our loans are secured on freehold property across England and Wales.
Crucially you will always speak to a decision maker with full autonomy to make in-house decisions, a key factor in why we attract so much repeat custom.
Why not give us a call on 03332 400 506 for an informal chat about your options.
Media ContactCompany Name: Central BridgingContact Person: John CliffordEmail: Send EmailPhone: 03332 400 506Country: United KingdomWebsite: https://www.centralbridging.co.uk
