Attracting a room of brokers, lenders, packagers, valuers, lawyers and compliance experts from across the bridging industry, the first AOBP quarterly event, held on 8th March 2012, provided the opportunity for all sectors of the market to engage with their professional counterparts.

Kicking off the event, Jonathan Newman, Chairman of the AOBP and leading bridging lawyer, highlighted the association’s focus on diversity and communication, illustrated by the industry wide panel who took questions from the room.

Hottest Topics

The panel began with discussions of what each speaker considered to be the hottest topic in the bridging industry today. Each panel member raised a different concern, ranging from the MMR, fraud and fees to commission rates, dual legal representation and even sourcing systems.

Beginning the debate, compliance expert Ray Cohen suggested that all intermediaries need to look very carefully at their current processes as affordability assessments and advised sales were at the fore of the MMR consultation. This means that more time will need to be spent on paperwork prior to completing a deal in the year ahead.

Further emphasising that bridging will continue be a complex and bespoke product, Alan Margolis, Head of Bridging at United Trust Bank added, “Let’s get away from the idea that there are billions of pounds of bridging loans out there”, going some way to discourage any new lenders in the market out to make a ‘quick buck’. 

The next key concern raised by the panel encouraged the intermediary community to carefully address is the fees and rates of a bridging loan. The consensus from the panel was that placing a deal with the right lender for the client’s needs should be paramount.

Simon Juniper, Director at Only Bridging, offered insight, gleaned from his recent country-wide broker workshops, that complex pricing structures associated with bridging finance still aren’t fully understood. Fully transparent disclosure from lenders and an educated broker community should be at the fore of the industry’s concerns.

Andrew Bloom, Director at Masthaven Group Limited, suggested that brokers need to look at which lender provides the most appropriate product and service for them. With many lenders in the market, brokers have the ultimate choice – rather than tailoring clients to lenders’ requirements.

Dual representation

Immediately highlighted as an important topic for discussion was dual representation; and a broker questioned whether having just one solicitor might cause a conflict. Eddie Goldsmith of Goldsmith Williams – which acts as a dual representative firm for Precise Mortgages – said: “In the mainstream mortgage market joint representation is the norm. We are fortunate to be working with Precise, who asked us to look at the risks involved in acting for both the borrower and lender. We took the view we could carry this out.

“There can be both delays and extra expenses if two solicitors are involved in the same transaction. If one lawyer knows the lender’s criteria then they can act for both the borrower and the lender which can abbreviate the process and save significant cost.”

Unlike Eddie, Jonathan Newman displayed reservations. “I think the borrower is best suited to have someone with interests specifically for them. Bridging is not a vanilla loan; it is very different to the normal mortgage market. A borrower, in my view, should have an independent solicitor who understands bridging needs.”

Alan Margolis agreed: “To me, there is an intrinsically fundamental conflict between the borrower and the lender. I want someone to be independently legally advised. If something goes wrong the solicitor may get blamed. It is the job of the lender’s solicitor to work with the borrower’s solicitor – this model has worked well for years. I await Eddie’s experience with interest.”

Extension fees

One question from Steve McColl of Soho Corporate, concerning exit fees, asked what percentage of loans goes over term. Andrew Bloom emphasised that the client “needs to know what happens if they go over the term”. He also revealed that around 15 to 20 per cent of their loans do go over their term.

Alan Margolis added, “A good lender manages loans. At the end of the term our clients are likely to have an extension agreed. Reputable lenders avoid issues where loans default.”

Tomer Aboody, Director at MT Finance, commented: “Lenders like us don’t give minimum terms but we encourage the borrower to take a longer term and manage the loan throughout, including sending letters to borrowers reminding them. As long as we know the exit is at the end of the tunnel we will allow the client to extend the term and, most of the time, take a view with regard to interest rates.”

Rate change

One topic Simon Juniper highlighted as a subject of discussion amongst brokers during the recent Only Bridging workshops was a situation in which the offer changes as the deal progresses.

Simon Ismail, of Goldentree Financial Services, spoke about his own company’s policy. “We don’t move goalposts. Sometimes the application can be very different to the property that actually comes in so we go to visit every property. A borrower can mislead a lender or an introducer because they are desperate for cash. This can lead to a change in terms.”

Lucy Hodge, Director of packager Vantage Finance, offered some reasons why a deal can change: “A lot depends on how the deal is presented. If the lender agrees a keen rate then something comes up it can change the rate because the risk profile has increased.”

However Andrew Bloom disagreed: “I would argue against this. If a lender agrees to do a deal at a certain rate then it’s either a yes or a no. If the lender can proceed then they should honour the rate they have agreed – I don’t agree with risk-priced rating.”

Valuations

Another question which caused much debate and differing views from members of the panel regarded reaching valuation. Steve McColl highlighted that valuation is a key point in the process of a deal. He asked, “What percentage of deals reach completion after valuation?”

Simon Ismail revealed that the majority of their deals don’t rely on valuations. He said,”Very few deals for us drop down on valuation.”

He defended why Goldentree do not rely on valuations, stating: “I’m yet to see a valuation that comes in at anything other than the purchase price, although valuations add value in certain situations.”

By contrast, Shaf Ali, Partner at Belleveue Mortlakes Chartered Surveyors, revealed that for them: “Half of valuations agree with the purchase price while half are down-valued. We disregard the purchase price when valuing.”

Jonathan Newman said that, from a legal perspective, “valuation is an art not a science. Courts also say more often than not market price is the best indicative value.”

The FSA

Breaking up the heated panel discussion, the arrival of David Forsdyke and Lorna O’Brian from the FSA offered some insight into the regulator’s stance on the bridging sector. Focusing on two key areas of the MMR proposals – Responsible Lending and Distribution and Disclosure – the pair gave a high level overview of the consultation paper.

David highlighted that for rolled up or retained interest loans the borrowers must demonstrate a credible exit strategy which is assessed by the lender. Further clarifying the MMR’s proposals, he also revealed that future emphasis will be on ‘advice’. Lenders will need to be able to demonstrate that the advice they offered to the client included an assessment of why a mainstream mortgage product is not appropriate for them.

Questions from the audience had David predicting when second charges will be regulated (his guess was that this will be in line with or shortly after the implementation of the MMR which won’t be before Summer 2013), a definition of high net worth clients and a justification of the FSA’s research on the mortgage market and customers’ perception that they were being given advice.

Broker views

Tackling a number of topical issues, the forum certainly stirred debate amongst the audience members we caught up with after the discussion had finished.

Broker Rakesh Bhala, of RB Mortgages, said: “Events like these are helpful because you can see what other people in your industry think and whether there are any changes to offerings in the market. The FSA talk was good and I picked up on some of the relevant points made in the MMR.”

One of the more vocal members present, Steve McColl told us, “It was a great event and I really enjoyed it. It helped me firm up in my head things I was aware of and it gave me a clearer thought process on where the market is going.”

He added, “I’m very open about figures and I would encourage other people to be open about both successes and failures. In such a small, specialist industry you want to know that you are doing the right thing. The role the AOBP can grow into is in switching the balance away from the industry being lender-driven to becoming more broker and master packager-driven.”