Bridging isn't expensive, 'it's a transactional cost that you have got to weigh up'




Last week, Bridging & Commercial hosted its second virtual roundtable, in partnership with Masthaven Bank.

The topic was on ‘Everything you’ve always wanted to know about bridging but were too afraid to ask’.

The live event was held on 8th February, when approximately 60 viewers tuned in to watch the panel discussion.

Host Beth Fisher, editor at Medianett, was joined by Masthaven Bank’s director of bridging, Alan Margolis and sales director Richard Deacon.

The panel also included Dave Ottley, managing director at Balance for Business; Aaron Noone, sales and operations director at Master Private Finance; Laura Toke, associate for short-term finance at SPF Private Clients; and Jo Logan, short-term lending and development finance specialist at Brightstar.

The discussion went back to basics, with panellists answering the most popular questions they receive in a bid to dispel common industry myths.

When talking about cost misconceptions, Richard highlighted that many brokers say it is expensive, but urged them to ask, “compared to what?”

“Bridging finance is expensive — if you compare it to a mortgage,” he said, mentioning that the former (on the cheaper end) is around 6% per annum, with the latter around 1% or less.

However, he explained that there are a variety of reasons why a borrower might not be able to get a mortgage — such as the property being unmortgageable or having insufficient credit or income.

“Bridging finance, for me, isn’t expensive — it’s a transactional cost that you have got to weigh up.”

Aaron said that many of these fallacies have arisen by the “long shadow of sin, [cast] by bad behaviour” which brokers then have to then go and unpick utilising “proper standards”.

He pointed to the number of unregulated bridging lenders in the market: “Are we all performing to the same set of standards and behaviours? ‘No’ is the answer to the question.”

He illuminated that brokers have an obligation to communicate to mainstream, first-charge mortgage intermediaries in the right way — “you’ve got to be able to converse in their language”, especially when considering that cost and rate are the drivers of that industry.

When clarifying the differences in terms of processes between mortgages and bridging, Jo said that they can’t be compared.

“I think you should be focusing on the benefits that bridging has to offer to the clients,” she said, rather than cost differences.

Alan agreed: “It’s not about the money; it’s about the service.”

“You have the ability to pick up the phone and discuss the case and its intricacies with the actual underwriter,” he imparted.

“You’re not dealing with a call centre [or] a product where you invariably have to fit into a very neat product silo.

“In our [sector], there are nuances, issues, and things that can only be resolved or understood by people — and that’s what [bridging] is about.”

In Dave’s opinion, one of the biggest advantages of bridging finance is that brokers can talk to and challenge the lender.

“Whatever the circumstance is, the lenders are far more agile, mobile and receptive to the challenges the client faces.

“That’s our main concern as brokers — making sure our clients’ needs are resolved.”

He stated that while bridging had been used for one or two reasons in the past, it can now be used for many others, such as light and heavy refurbishments, auction purchases and developer exits.

“When you’re talking to your clients and you’re finding out their own set of personal circumstances . . . you can very easily mould and fit that into the lenders that are available.”

Considering 2020 was a considerable learning curve for everyone in the bridging industry, the broker panellists were asked what new questions brokers need to ask lenders.

Aaron thinks that queries are now more focused around technology, especially with regard to whether a lender still relies on scanned documents, or if they operate a portal and allow APIs.

He stated that the tech-savvy lenders that have invested in their internal services will now really start to see the benefits.

“As we are getting busier, we rely on our lenders to modernise at the same time,” he commented.

“If we are seeing 10 DIPs a day that we need to write [up], it’s a significant drain on time and resource that the broker has to carry.”

He added that brokers will be looking to tech-driven lenders to make sure they can introduce business “cleanly and safely under GDPR, and that what we have keyed in is what we get back” all while avoiding unnecessary communication via email.

Jo said that some of the basic questions she is now asking lenders are: will this qualify for an AVM? Do clients have to go in and see their solicitors? Are there ways around these processes that will make things slightly quicker?

According to Laura, how the loan will be redeemed now needs to be looked at in more detail upfront, as lenders seek more comfort regarding the exit route.

She disclosed that they are now having to look at sales times for similar properties and marketing reports from the agents, sometimes before even getting terms agreed.

“In a lot of scenarios, the lenders do want a backup exit strategy being refinance,” she added. If this is the case, the funding provider may need two credit-backed DIPs to evidence this.

Richard agreed that the exit route was the main focus.

“All bridging lenders want to protect their money,” he stipulated, noting how he has seen the demise of many bridging lenders over the years.

If the exit is sale of property, the argument is that, while the pandemic has changed things “dramatically”, house prices and sales, in some areas, have still “grown massively”.

“But, as a lender, you do want more time,” he warned.

“If plan ‘A’ doesn’t [materialise], then what is plan ‘B’?”

The full roundtable recording can be viewed below.

 

1 Comments

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    Philip Clarke

    Can you please ensure we receive details of your webinars Disappointed to not receive details of last event highlighted We provide mezzanine & equity funding facilities Your magazine is excellent

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