Broker Guide: Understanding lending criteria set by funders

Broker Guide: Understanding lending criteria set by funders




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One subject that isn’t so often covered, but can be essential to a broker’s success, is the restrictions that lenders may put on them from their respective funders or investors and how these can affect the tariff or deal a lender will offer. 

Many decisions on loan applications can surprise brokers due to a lack of understanding as to how certain lenders’ lending criteria can change due the parameters set out through different funding lines.
 
Terry Pritchard of PWF Finance summed up what can be, at times, a baffling situation for many intermediaries: “Brokers are all too often keen to apportion blame to lenders because they have made themselves easy targets. However, more often than not lenders rely on investment funds and other routes for the money they lend on and these lines of credit often impose strict guidelines that have to be adhered to.”
 
We spoke to a number of lenders to ask them whether they are guided by the wishes of their funders and investors and how brokers can better understand this.

Alan Cleary, Managing Director of Precise Mortgages, commented: “Funders will typically sign off on the company’s lending policy especially around LTV, max loan, credit profile of the borrower, margins and property type, some may also make special restrictions around other factors such as geographical.”

Colin Sanders, CEO of Omni Capital, said: “There are high-level lending guidelines that investors and funders agree to. Lenders develop their product and pricing suites to complement these.”

Christian Faes of Montello Bridging Finance also commented: “We have some restrictions on our lending, which is dictated to us through our funding lines. The primary constraint being with regards to LTV and geographical focus. Other than this, the underwriting process is entirely up to us.”

Duncan Kreeger, Chairman of West One Loans, talks about the benefits of having a number of funding lines: “The beauty of our funding model – where we match the risk profile of our private investors with specific loan applications – is that we don’t generally have set criteria.

“Some of our investors are more risk averse than others, but their diverse criteria means we don’t have to exclude a lot of business and that we can operate with a more flexible approach than other, less accommodating, bridgers. We can avoid a lot of red tape and we don’t have to rely on vanilla finance models. That translates into never having to make empty promises to brokers.”

Another part of this is how these restrictions might directly affect what they are able to offer.

Colin Sanders commented on the risk funders are willing to take and what these risks can affect: “Lenders will always assess risk by use of various means or 'levers'. These levers can usually be put into different categories of risk profile including: property type, geographical location, credit profile, LTV, loan size, affordability profile and product type. This inevitably leads to certain exclusions being applied at one level or another.”

Alan Cleary commented how the funders at Precise are quite flexible and are open to changing their guidelines: “We can look at most loans that make commercial sense both inside and outside of the M25.

“If a lender did have restrictions, it would be best to put a logical argument to their funder as to how they could legitimately tackle them.”

Duncan Kreeger said that West One’s funders are also very flexible: “The only possible restriction I can think of is when a loan to value becomes too risky, veering over the 70 percent mark. Other than that, we just get on with it.”

Lenders can also find approaches from brokers to be based in misunderstanding or misconception.

Colin Sanders spoke of how often brokers come to him with misplaced preconceptions of what is on offer: “Our preferred way of resolving an application that is not open to us in the short-term is to refer the broker to an experienced 'master broker' or packager.

“In this way, all parties in the value chain, including the end-customer, can benefit. Taking the longer term view, we believe brokers in general will become better informed as the bridging sector becomes better understood and more transparent. We are seeing signs that this is already happening.”

Alan Cleary commented: “We do get calls asking for things we cannot do but I would rather them call and ask than to not ask at all. They could look at our website which clearly states what type of loans we do but some people prefer to speak to someone.

“Also, in Short Term Lending we can take a view on a case if it is a great deal, even if it is outside normal policy. The Short Term Lending market is much more fluid than mainstream with a much more flexible approach to lending, this is necessary because many of the deals are quite complex.”

Duncan Kreeger feels that brokers come to him not expecting to be as flexible as they are: “We come across plenty of brokers who expect more restrictions. They have got used to lenders who don’t make immediate decisions, where they can’t talk to Lending Directors & decision makers directly, we’re they are unable to discuss competitive and flexible terms on cases to effect fast completions of business. I hope they find us a refreshing change!”

Christian Faes believes that a lack of understanding of products isn’t entirely the fault of the brokers: “We believe that there is still quite some confusion in the market about what certain lenders offer. This in many respects is due to some bridging lenders promising the world, and then not really being able to deliver. However, this is not the fault of the broker. Most brokers that are still active in the mortgage business are generally pretty good at what they do.”

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