The positives are that rates are driven down, service standards improve, and borrowers have more choice. More lenders and more noise also make bridging a more mainstream proposition or, in the right circumstances, a first-choice solution.
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In relative terms, it’s easy for a new unregulated lender to set up tomorrow, if they have the funds and the appropriate stakeholders. Lenders can range from private individuals right through to institutional funders, some with limited funding being so small that they remain in the background or under the radar.
Some may be seeking what is perceived to be a lucrative return at low risk, however, gaining a foothold may well take a higher-risk approach. This could be through lending at higher LTVs or by reducing the due diligence required on the case, either through naivety or over ambition. In the worst instances, they may even apply what are described as hidden charges or inadequate lending practices. Naturally, these approaches increase the risk of a poor outcome for the borrower, with high default rates or repossessions. Obviously, this approach damages the industry’s reputation, negatively affects perception and may lead to fewer people looking at bridging as an option.
As an industry, it would be good to establish a recognised minimum standard, ideally to have some sort of charter mark. This would help give brokers assurance that a lender is abiding by a set of professional standards before providing guidance to their client.
There are many reasons for these standards, one is to ensure the outcome for the customer is good; whether the borrower is well versed in bridging finance transactions or not, they are provided with the right information to make an informed decision.
Another reason is that it raises the standards and reputation of the industry. As lenders embrace this professional approach, it would help brokers easily identify those lenders that haven’t signed up to the charter that may be a higher risk for their client.
Coming from a regulated background (I used to work at NatWest), I see the principles of regulation as a positive thing which, when applied to bridging finance, appropriately ensures a positive customer outcome. Those lenders who have this approach are already self-regulating with the support of associated trade bodies, such as the National Association of Commercial Finance Brokers, Association of Short Term Lenders or Financial Intermediary & Broker Association.
Those who don’t lend with the appropriate skill, care and diligence not only do a disservice to the client, but are unlikely to survive when professional standards continually rise and lenders are driven to do the right thing.
A voluntary code of conduct or benchmark, that requires a greater level of transparency, would certainly benefit the market. At the moment, it is difficult for a broker, or client, to compare the pricing offered by lenders. This includes rates and the fees charged by lenders, brokers and any third parties involved in setting up and servicing the loan. Clients need to know exactly what it’s costing them throughout the term of the loan.
This will help brokers gain an in-depth understanding of a lender’s overall proposition before recommending them to their client. The lowest perceived upfront rate may not always be the best, or even the most cost effective, over the term of the loan and standards and transparency will make this apparent from the start.