Broker slams bridging lenders backing out of deals at last minute

Broker slams bridging lenders backing out of deals at last minute


There are many reasons why a bridging loan deal can fall through – inaccurate information on an application form, problems with the security property, and sometimes lenders can decide that they just don’t feel comfortable with the case.

This last point has (understandably) caused much consternation in the broker communityof late, especially when it happens in short term loan situations where time is of the essence.

A broker can spend hours filling out forms, sending off the necessary information, organising valuations, contacting solicitors and instructing the client and suddenly just as completion is within reaching distance...the lender can suddenly refuse to release the agreed funds.

Danny Churchill, director of specialist packager Commercial 1, has said that he has come up against this problem with a few lenders on a number of deals: “Some bridging companies have earned a bit of a reputation over the last few years of not honouring terms and completing on perfectly good applications and have cited numerous excuses for their inability to fund,” he said.

“I could name three or four companies who have exposed customers and brokers at the 11th hour and 59th minute but apart from making me feel better it would serve no real purpose and, in this market, it is wise to never burn your bridges, if you excuse the phrase!

Citing a case 10 months ago, Mr Churchill said that on this particular occasion, a second charge bridging loan was due to complete, and confirmation had been received that the funds were due to be released. However, on the morning of the funding, an underwriter from the bridging firm sent an email saying that the particular funding line of the lender had suddenly decided that it didn’t want to operate in the second charge bridging market.

Mr Churchill said: “There was no apology, no explanation was offered and with no responsibility or acknowledgement of their actions. That was the real issue for me.”

Even more confusingly, the second charge loan had a definitive exit route in place, an exchange on the property had already happened and the client was waiting for a completion date.

Mr Churchill lays part of the blame on lenders not fully understanding the regulatory issues relating to second charge bridging loans on residential properties. He said: “If a lender’s legal department doesn’t understand if the regulation comes under the jurisdiction of the FSA or the CCA, and hasn’t put the correct regulatory requirements in place and prepared the correct documentation when writing their lending guidelines, it creates big problems.”

Mr Churchill added: “I have no issue with a lender saying no to a deal, that is their prerogative, however to allow a client to pay hundreds of pounds in application, survey and legal fees and cancel a deal on the morning of completion is unacceptable.”

Bridging and Commercial brought this issue up with a senior figure in the bridging industry, Alan Margolis, Head of Bridging at United Trust Bank, who said that he sympathised with Mr Churchill, adding that bridging lenders shouldn’t turn down a deal at the last minute unless there is a good reason.

Mr Margolis explained: “There are all sorts of legitimate reasons why a lender can back out of a deal. Something may come up in the underwriting procedure, such as legal complications that haven’t been disclosed, or something in the borrower’s personal history, or if there are problems with the exit route. Also, lenders become nervous if a borrower’s story changes.

“However,” he added, “there is no excuse if a lender backs out of a deal due to a change of heart or some regulatory re-evaluation.”

Last year warnings were issued by the NACFB about fraudulent “cowboy” lenders that charged huge upfront fees for loans that never materialised. Mr Margolis called these “fee-fishing expeditions”, saying that they are “worse than inexcusable”. 

Mr Margolis continued: “Generally, short term lenders want to complete loans because that’s how they make their money. If lenders are underwriting, doing lots of work and no loan results from it, then that’s a waste of their time and resources.

“I would advise brokers to ensure as much as possible that the information obtained from borrowers is accurate and complete so as to avoid adverse or negative facts emerging in the underwriting process. Avoid paying upfront fees at all cost, and avoid situations where promises are made by lenders without proper underwriting. Anyone can issue an offer letter; but an offer letter issued after 48 hours or less with no underwriting or due diligence done is just a glorified decision in principle.”

Speaking for brokers, Mr Churchill stressed that bridging companies should only operate in markets which they feel comfortable in, adding: “Don’t pull out of a deal without a suitable, reasonable explanation and if you do, a bit of humility and understanding of the gravity of the situation would not go amiss. This is now a volatile market place and the balance of power has now shifted from the broker to the lender – in some respects quite rightly so – but never bite the hand that feeds you, and remember that it is often the client’s livelihood at stake.”

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