"By brokers being diligent and asking the right questions from the outset, it ensures the client is placed with a suitable lender"
The latest figures from the Association of Short-Term Lenders (ASTL) reveal that whilst applications for bridging loans have risen, completions are down.
The ASTL says it expects this high value of applications to result in improved completions going into Q2, but I’m not sure that will necessarily be the case. This is because the bridging market as a whole has seen a marked increase in the number of loan applications not making it through to completion.
Generally, there are three main contributing factors to this trend. The first is down to the initial fact-find, the second is a transparency issue and the third is due to unrealistic expectations.
Most brokers undertake proper due diligence before placing a bridging loan application. However, some don’t always get a clear understanding of the full facts and circumstances within the application. Naturally this information is essential for the broker to choose a suitable product and lender to ensure the right outcome for the client.
For example, Hope Capital is a non-regulated lender, however we have recently seen applications from brokers where the case is clearly a regulated case. We manage to capture these scenarios through appropriate due diligence, but naturally cannot proceed with these kinds of loans. By brokers being diligent and asking the right questions from the outset, it ensures the client is placed with a suitable lender and provided with an appropriate product, saving time and effort for all parties.
Lack of transparency
Brokers also need support from lenders. From a broker’s point of view, it appears that some lenders are not transparent enough about the requirements for the loans to complete. For example, on application a broker should be provided with a clear list of requirements for the case to complete. We all know that as cases progress more information can become apparent that couldn’t have been perceived at the outset. In these instances, an updated requirement list will be necessary, however for those cases where all the information is present from the outset there should be a smooth transition from enquiry to completion.
We’ve seen occasions where lenders say that they can lend, only to decline the loan at the last-minute leaving broker and client high and dry. Of course, there will always be genuine instances where cases are declined or offers reduced, however as lenders we should all endeavour to be transparent in our requirements and aim to support the broker and client.
As often is the case, there is the issue that borrowers have higher aspirations on property values than are realistic. However, borrowers who are refurbishing the property or renovating can get even more ambitious with their expectations of future value. There can also be a lack of realism around the length of the loan term, particularly if they are carrying out serious refurbishment, or the viability of their exit strategy.
Support from the broker in managing client expectations can often be essential in these instances, particularly as a broker should be also be looking at the exit strategy of the loan. If clients believe it is easy to refinance the broker can help guide the client to ensure that they will be able to secure longer-term finance. Of course, this should be considered even before the client takes out the bridging loan, particularly to ensure multiple applications are not submitted to different lenders. Ultimately, guiding clients and managing expectations is an essential role of the broker and lender to ensure the outcome is positive.
Communication, education and transparency are key
Strong communication between the broker and lender is always essential. For example, if a client comes to any broker or lender with a valuation that seems too high, it is sensible to check the details to ensure their expectations are realistic before progressing. At Hope Capital, we would never allow a client to pay their valuation and legal fees unless we were confident the loan will complete based on the information provided. We’ve seen scenarios where valuations have been paid for and solicitors instructed when clearly the valuation wasn’t going to meet expectations.
It all comes down to communication, education and transparency. It is prudent as a lender to send out a ‘checklist' with heads of terms, detailing all the next steps, so that the broker and lender can support each other for the benefit of the client. By keeping everyone informed at every step of the way will help prevent applications from falling away.
Building a good relationship between lenders and brokers, helps to educate both parties in what we will be needed, so that the only applications submitted are ones that are likely to complete.