The bridging market can't just involve lenders with low margins, LTVs and risk, says Rob Jupp

Last week, Bridging & Commercial partnered with Glenhawk to discuss the race to the bottom on interest rates and what it means for customers.

As part of its weekly virtual roundtable series, Medianett’s managing director Caron Schreuder, as well as Glenhawk’s CEO and founder Guy Harrington and managing director Nick Hilton, hosted a live panel debate that looked at the gradual lowering of pricing in bridging and the reasons for and ramifications of this trend. 

The panel also included Rob Jupp, CEO at Brightstar Financial Group; Kim McGinley, managing director at VIBE Finance; Chris Oatway, owner and founder of LDNfinance; and Matthew Rowne, director at The Buy to Let Broker. 

Responding to a stat from the latest EY Bridging Market Survey that revealed 42% of respondents had experienced pricing in the sector reduce during 2020, Rob was “surprised”, given that, from his point of view, he had seen “no compression in margins in two years”. 

Following the influx of challenger banks, which have access to cheaper retail funding, he acknowleged that rates were impacted, but believes they are now stable and have gone as “low as they should go”.  

“Perhaps with time, this could be deemed a storm in a teacup,” Rob posited. He warned of the dangerous precedent that could be set if lenders continued to bring interest charges down. “When short-term lending rates become the same as long-term commercial rates, there is a complete mismatch in risk profile.”

Kim highlighted that lower rates are frequently offered through providers that can also offer the term exit — but speed is often left wanting.

She indicated that clients are often “fixated” on the initial rate but, when it comes to bridging, it is vital to take all the fees and other important factors to the client into account. 

Guy believes that the mass liquidity in the market is greater than ever before. “When you get a situation in which the supply is greater than the demand, you’re going to get this fight that we have going on at the moment,” he explained.

He shared that, in order to maintain lender quality, there is a “fine line” to be tread between adjusting pricing — which Glenhawk has done slightly — and running a commercially viable business. 

Reviewing the landscape of lenders in the market, Chris empathised that it is difficult to stand out at present; headlines rates are used to win business, especially as LTVs return to north of 75%. 

However, considering that service and deliverability has become of paramount importance over the past year, an attractive interest rate alone “won’t get you far”, he commented. 

Matthew suggested that the less differentiation there is between lenders, the smaller a broker’s panel may become — and that this can lead to price matching among that group of providers. 

“That also accellerates this race to the bottom, as lenders begin undercutting themselves and offering bespoke rates.” 

He agreed that this is inherently bad for a lender’s margin, “but the cost of funds coming down is good for the consumer and can drive more money into the market”. When margins can’t get any lower, he feels it will drive innovation from lenders.

Rob is of the opinion that, in the long term, choice may be restricted for borrowers as lenders that cannot keep up with the lowering of rates are at risk of disappearing. “We can’t just have a bridging market that involves people at the top table with low margins, LTVs and risk; we need a fully functioning bridging market that encompasses everything for everybody.”

Nick pointed out that many ‘boutique’ lenders still charge 1%-plus, and a need for that top-end funding exists. He also predicted that new entrants that underestimated what it takes to operate successfully in the bridging space will fall by the wayside. “Sustainability comes from pricing, service and relationships.”

When asking the brokers about their priorities in a deal, Kim cited a lender’s ability to support a client when things go wrong as incredibly important — including their flexibility around extensions. Ultimately, she is concerned about brokers chasing lower rates without really understanding the terms of the loan. 

“For new clients, it is generally about rate,” Matthew claimed. “Thereafter, they come to you for value.”

The panel also urged lenders to place an emphasis on the way in which they onboard and ‘vet’ new brokers. 

“A large part of why the market is the way it is today is because of the greed of intermediaries that aren’t bridging experts,” Rob claimed. He added that they see the size of the commission and then ask all the wrong questions and get the wrong terms.

“This market will continue to be displaced if lenders do not get the onboarding process correct and just allow everyone to give them business.”

The full roundtable can be watched below.

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