Funding questions

Beware of misleading funding commitment headlines, claims Interbridge director

In an exclusive interview with Bridging & Commercial, Thorsten Lamberty, director at Interbridge, urged brokers to ask questions when it comes to how lenders are funded.

The comment was made following a question from B&C on how important committed funding lines are during these uncertain times.

“Funding is the lifeline of a lender — big or small,” he said. 

“However, funding commitment headlines can be misleading as they do not offer any insight into the risk appetite of the lender, nor do they explain lender treasury operations.”

He recommended that brokers should ask lenders questions, such as how much money they have to lend, what their specific parameters are for doing so, and how quickly funds can be disbursed to the borrower at completion.

Here are Thorsten’s predictions on what the bridging landscape will look like in 2021, his views on market share as a business metric, and why he is sceptical of conversion rates in the bridging market changing. 

Firstly, how has the new bridging product range been received by brokers, and what has the demand been like for the plex offerings?

After initially testing the product with our broker partners, we launched the product to a wider audience. The feedback was very good, and people liked the transparent pricing of our products, the extensive range of applications, and the flexibility around the exit. This led to a strong flow of enquiries and us experiencing our busiest month ever. 

How has the second lockdown impacted your lending appetite and processes? 

Our lending appetite is strong. We believe in the resilience of the UK residential market and we are ready to engage with the market for much-needed finance. We have already seen steady valuation corrections in the South East during 2017-19. This has helped the market to find a sound valuation footing in 2020. As a firm, we used the Covid lockdown in Q2 2020 to focus our attention on our internal processes and products. We previously had many ideas on where we could improve the business and the customer journey, but we simply lacked the bandwidth to implement them. Covid allowed us to actually get on with the various projects and we executed them well. Interbridge is going into 2021 significantly stronger with a vastly improved customer journey and stronger management information systems. 

How are you currently building relationships with brokers, and how do you aim to take more bridging market share?

As a company lending in the short-term loan market, Interbridge has always believed in relationship-based market engagement. Market share is not a relevant metric for Interbridge. Customer journey, quality of enquiry, and broker know-how are the factors that are key. ‘Working the loan’ and getting it to completion is what drives our approach, and what the market expects us to do. We are keen to speak to brokers and their borrower clients early in the process, and seek to understand both loan rationale and the security. Once we are comfortable on both, will we engage in formal underwriting.

Why can fewer, stronger relationships with brokers be more beneficial?

Successful completions require a joint landing zone of borrower expectations and lender capabilities. Expectation mismatches lead to failed applications and opportunity costs for all. A strong broker-lender relationship is often the difference between a loan that closes and one that does not. It is worth reminding ourselves that our borrowers come to the bridging market because they cannot raise finance in the vanilla secured lending markets. Hence, it requires strong broker-lender interaction to translate borrower needs into a funded product.

How important are committed funding lines during these uncertain times and, for those that may not know already, how is Interbridge funded?

Funding is the lifeline of a lender — big or small — and [surety of that funding] is therefore mission critical. However, funding commitment headlines can be misleading as they do not offer any insights to risk appetite of the lender, nor do they explain lender treasury operations. So, the questions to ask are, “How much money does a lender have? What are the specific lending parameters?” and, crucially, “How quickly can the money be disbursed to a borrower at completion?” To answer your question regarding Interbridge, we are institutionally funded and the shareholders have their own money in the firm. Our funding sources are truly significant and go well beyond what Interbridge can realistically exhaust on its own. In addition, our external funding sources are highly specialised real estate and credit investment firms which have actively sought exposure to international bridging markets. As such, Interbridge is highly aligned with the risk appetite and expertise of its funding partners. Also, we worked very hard with our funding partners to establish real-time treasury management to ascertain that our borrowers experience no disbursement delays. 

Conversion rates have historically been quite low in the bridging market. Do you think that an emphasis on building strong relationships during this year will change this?

You would think that to be the case, but we are sceptical. Certain broker models are geared towards quantum and churn velocity as opposed to an advice-driven broking. Therefore, we will continue to see poorly thought through cases being offered by way of shotgun approaches from brokers to the lending market. Equally, you will continue to see lenders offering terms that tie in brokers and borrowers indiscriminately without properly vetting the case merits prior to issuing and AIP. That means they lock the deal and either change terms later in the process, or drop out completely. In both cases, the broker looks exposed and the borrower is left high and dry. 

We would say, however, that credit has significantly tightened due to Covid, and that a relationship-based approach will certainly improve conversions.

In your opinion, what do you expect the bridging finance landscape to look like in 2021, in terms of competition, offering and diversity?

We expect the market to rebound once the impact of Covid and Brexit is better understood. Competition will change slightly in that both large brokerages and big lenders will need to adapt their pre-Covid business models. Non-exclusive virtual broker platforms, changes in lender risk appetite, carry costs of non-utilised funding lines, and the establishment of new brokerages from the wholesale redundancies which we have seen in the past six months, will all contribute to a changing market environment. We believe that this will lead to a substantially more transparent awareness of lender choices for borrowers to go to. We believe that smaller lenders, like Interbridge, will have a role to play because of a more flexible business model and a much more solid, relationship-based approach to the broking market. 

In what ways do you see these broker and lender models changing? 

Technology-induced transparency of the bridging market will empower small regional brokerages and introducers to reach out directly to lenders like Interbridge. Supply chains shorten and fee layering is not required. We believe that packagers may find it increasingly difficult to maintain their cascade structures. Equally, some of the very big lenders [may] need to re-appraise their risk models as lending became (pre-Covid) too focused on volume and quality [may have] suffered. At Interbridge, we never subscribed to the notion that a bridging loan is a standard mortgage — it isn’t. 

How did you get into financial services?

The Interbridge leadership team has worked in global and investment banking for more than 25 years, and we believe that the financial services and banking industries are great spaces to be in. For a long time, we were keen to create our own business as financial service entrepreneurs and identified the UK bridging market as an exciting market to explore. We entered the UK bridging market in 2014. 

If you weren’t doing this, what would you be doing?

Working as a travel journalist.

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