The underbelly of a bridging lender's proposition

We operate in a transactional market.?

It's often product, rate and leverage which can clinch a deal for a lender. It’s these points which hog the advertising space in industry press and it’s these on the tips of BDM’s tongues when speaking to brokers.

As a BDM and a marketer myself, I’m guilty of it too.?

But there are many other crucial factors which a top broker will consider before advising their client to proceed with a particular lender. From a lender’s perspective, the calibre of a broker is clear by the non-product related questions they ask.?

Deliverability?

Arguably the most important. Fundamentally, bridging is about getting the client the funding they need and a broker needs to be able to rely on their lender to get the job done. A lender’s certainty of funding, trustworthiness and the flexibility to overcome the hurdles that naturally arise, should be integral parts of a broker’s due diligence. Of course, when using a lender for the first time this can be a challenge, but calling upon industry peers to ascertain a lender’s reputation could be a good place to start.

Service

In our market service is about two things: speed of response and clarity of communication. The SLAs the lender operates within, how quickly they respond, and whether they provide brokers with a direct line of contact with decision makers are all important points for consideration. A great lender will respond quickly, with honesty and transparency, and won’t hide their decision makers behind email.?

Funding lines?

Often the part of a transaction spoken about the least. Most non-bank lenders have multiple funding lines, which are typically finite. And often each funding line will have different criteria to the next. A broker will consider which funding line the lender will be using for their transaction, what the relationship between the lender and the funder is and then make a judgement on how certain they feel the funding is.

Valuation methodology?

Down valuations are the one of the most common reasons deals fail to proceed. A lender has a duty of care to make it clear how they propose to value the subject property at outset, and a broker should make this a key part of their decision. Whether the lender lends against OMV, a 180 day or 90 day value should be taken into consideration, but also what valuation methodology they plan to adopt. For example, an investment valuation on a high yielding asset like an HMO will deliver a higher valuation compared to a bricks and mortar one, but in some scenarios an investment valuation will deliver a lower value compared to an open market figure. Similarly, an aggregate valuation on multiple units will typically deliver a higher valuation compared to a block or single-lot value. It’s these intricacies which can be the difference to the deal working or not.

Speed

Bridging is usually about delivering funding for the client quickly. A broker will assess what steps lender takes to ensure tight timescales are met; whether they use AVMs, allow dual representation, whether they plan to use title indemnity in lieu of searches and what their underwriting and credit approval process is. Each of these factors, along with general service levels, will be pivotal in how quickly a case can complete.??

Treatment of borrowers?

It’s not uncommon for a borrower to require extra time to repay their loan. How a lender treats the borrower in these scenarios?should play a key role in whether they are chosen. Whether the lender charges extortionate fees as soon as a loan goes over term, if they load the rate within an extension period and if interest charged daily or monthly, are all critical points. A lender with an unfavourable policy could cost the borrower thousands of pounds and jeopardise a broker’s relationship with their client.?

Conclusion?

Whilst some might assume that an unregulated transaction does not require the same level of suitability as a regulated one, the best bridging brokers will look beyond the marketing glitz to ensure they have selected the right lender for the client’s transaction.?

And as an industry we should do better at bringing these points to the forefront of the conversation to make a broker’s life easier when making their assessment.?