Perception is everything - Never judge an industry by its critics

Perception is everything - Never judge an industry by its critics




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In the wake of last week’s MBE, a couple of articles were published in the trade press which served to further fan the flames of negative perception surrounding bridging finance. In the interest of fairness, our Deputy Editor Jason McGee-Abe decided to offer readers the other side of the coin, with the added input of a number of key lenders in the sector...

Providing a fairly negative view of bridging, it is fair to say that the two pieces in particular – one a news article and one an opinion piece – have raised some concerns amongst the industry.

Splashing the cash - Fat cat margins

The opinion piece includes the line: ‘Bridgers’ presence dwarfed the major lenders exhibiting, because quite frankly they have the cash to splash and boy do they splash, it is completely at odds with reality’.

Whilst there were indeed a number of bridging exhibitors on the day, the reference to ‘cash to splash’ is, I believe, somewhat at odds with reality.

As Mark Abrahams, CEO at West One Loans, commented: “There is no cash to splash. There’s only cash to lend as opposed to the banks that don’t have cash to lend and thus ‘cash to splash’ on exhibiting themselves.”

Today’s blog by Martin Gilsenan, Sales Director at Omni Capital, encapsulates more of the general feeling amongst the industry: “As for splashing the cash, if only! I can’t speak for others, but I know we at Omni Capital keep a pretty tight lid on the petty cash tin.

“Sure, some bridgers are clearly spending significant sums promoting themselves. So what? If it’s legal, moral and helps them meet their targets I don’t see the problem. Nor do I see much evidence of silly extravagance – and as a former participant in the sub-prime boom, I know extravagance.”

Commenting on the opinion that lenders have ‘fat cat margins’, Mark added, “We have respectable margins which are eaten up by significant costs.  Margins are being constantly erased by more lenders entering the market place, which is driving rates down.”

Bridging Index

Another quote in the opinion piece included: “The bridging market accounts for £1bn of lending a year. And that’s a finger in the air guesstimate of how much business gets written.”

These statistics are from West One Loans’ latest Bridging Index. In response to the quote, Mark said: “This is not a finger in the air guesstimate. It is an amalgamation of some of the top lenders’ loan books and trade body figures.

“This is the first real attempt to put an index together in this market, and the bridging market is likely to be more than £1 billion a year. This is because our figures are relatively conservative when you take into account that it only includes the 25 to 30 bigger lenders in the industry. The other 60 to 70 who call themselves bridging lenders and a plethora of smaller funds are not included in the Index statistics.”

Hotspot for Fraud 

Comments by John Malone, Executive Chairman of PMS, during the mortgage fraud seminar were highlighted in both articles.

According to the ‘Bridging is a fraud hotspot’ article, John said that brokers have been accused of pushing surveyors to overvalue properties to get a bigger bridging loan and that this type of fraud is rife.

Mark is adamant that bridging is not a ‘hotspot for fraud’: “If bridging was rife with fraud then private investment models would not be sustained. If there were problems with fraud there wouldn’t be money to lend from investors.”

John is quoted as saying: “More potentially fraudulent activity is taking place, especially in the bridging sector. This is where the intermediary is pleading with the surveyor to make the deal work.”

The piece continues: ‘Malone said properties or developments were being overvalued so the borrower or developer could access a larger loan and effectively borrow at 100 per cent loan to value. And he added: “Lenders are now looking very hard at the valuation that is carried out where bridging finance has taken place. That’s where they’re seeing a lot of fraud taking place.”’ 

In the seminar, John also mentioned attempted fraud seen within the BTL and equity release markets – something which was not taken into account in the original article. In fact, he stated in the seminar that the biggest problem was with the BTL sector, which is where most of the fraudulent activity in the mortgage market is taking place.

What should be emphasised is that attempted, not actual, fraud has taken place. With lenders employing robust procedures to tackle fraud, the level of mortgage fraud actually occurring has remained static over the last 12 months.

Earlier this year, a B&C article explained how Masthaven Bridging Finance, in conjunction with the police, carried out a sting on the fraudsters who attempted to con the company out of £1.5 million. The guilty con artists have since been charged and jailed. This case highlighted the robust nature of underwriting and fraud checks within the bridging sector, even in more extreme sophisticated attempts such as this.

Martin Gilsenan also addressed these points: “With regard to fraud, show me a consumer-facing part of financial services that isn’t targeted: mortgages, loans, banking... they all suffer. As for insurance, just ask why your premiums continue to rocket year-on-year.”

The opinion piece does touch on fraud being ‘note, attempted not necessarily achieved’. However, not clarifying this point in the actual fraud article is misleading and makes the headline sensationalist, which may create confusion amongst brokers, especially those who need educating about bridging.

Scrupulous lenders 

Commenting on: “He [John Malone] also accused the sector of having some less scrupulous lenders still underwriting to repossession” from the opinion piece, Bob Sturges, Head of Communications at Omni Capital, believes that it is important to distinguish which lenders one is talking about in terms of unscrupulous activities.

I also believe John, especially if making a statement about the bridging sector, an industry he’s not actually involved in, should have distinguished between the mainstream lenders and the smaller, fringe bridgers rather than making a generalisation about lenders as a whole.

Mark stated: “West One Loans would never underwrite to repossess and only lends money to those people who have security and sensible exit strategies.”

In Bob’s view: “I would suggest that bridging lenders divide into two camps. Anecdotally, there may be around 100 in total. In one group I would place what I might call the 'mainstream' players. These are lenders whose activities are very visible, transparent and aligned with the high standards and codes of conduct proscribed by the sector's trade bodies. Most will be active members of these bodies and many FSA-regulated. 

“The second group comprises largely private funders and those who prefer to operate 'below the radar'. The press, commentators and other lenders are often in the dark as to who they are, who funds them and what their long-term objectives may be, should they have any. While often serving a useful function as lenders of last resort, it is fair to say they do not always underwrite in the same way, or to the same standards, as lenders in the mainstream group.

“I believe it's important to distinguish between them. The mainstream component, which commands a significant market presence in terms of size, scale and activity, is setting the tone and leading the way in behavioural improvements in bridging. The other component appears less interested in such lofty ambitions. 

"How we respond to this presents bridging with a challenge. My concern is that the regulators may impose a one-size-fits-all solution that damages the sector as a whole. To help prevent this, brokers need to be careful and selective when placing deals with fringe lenders, particularly those that have been rejected by the mainstream lenders. They have a clear duty of care in this regard - a fact all good brokers recognise - and should respond accordingly.” 

This is where the media can help to educate and further inform brokers about bridging finance and the sector in a balanced fashion.

Richard Deacon, Sales & Marketing Director at Masthaven Bridging Finance, said: “There have been a tremendous amount of column inches written for our industry, which just goes to show that it is still growing and attracting investment.

“I cannot make comment on what people have been quoted as saying, as I was not in the seminars to see in what context it was taken. I will however say this, there is an awful lot more to come from the bridging sector, and if the right lender is chosen, that can only be a positive thing, can’t it?”

Negative perception about bridging 

It is our jobs as journalists to educate the broker community about what is happening within the bridging and short term finance sectors.

The opinion piece wrote that, in light of John Malone’s ‘accusations’, “Bridgers bluster till they’re blue in the face about how overblown this accusation is. In fact who’s right or wrong matters less than the indubitable perception that the bridging market is guilty of all this. Perception is everything – as bridgers advertising their wares yesterday well know – and they would do well to think about how they challenge the negative perception they’re faced with.”  

 

It is fair to say that bridging lenders can be more responsible and transparent, and it is important they challenge the negative perception they’re faced with. High standards and codes of conduct proscribed by the trade bodies are getting stronger in this ever-growing sector and lenders are leading the way on this. But to slam bridging as a fraud hotspot is not accurate, as there is no evidence to take this stance, and to hint at lenders being at fault is equally wrong.

 

However, an equally, or perhaps more important, challenge in terms of perception is how we in the media write about the industry and its activities to inform brokers about the marketplace and to write against (or write for, if justified) the negative perception of bridging and the “indubitable perception that the bridging market is guilty of all this [fraud/scrupulous behaviour]”.

 

This article, which is clearly for the former, attempts to address misconceptions written by another industry publication. Whilst it is fair to say that bridging is not perfect and can be improved, the main issues and problems are with the small lenders who do not adhere to codes of conduct or FSA-regulation.  

 

To write sensationalist headlines, solely negative comments and to take out of context that bridging finance is bad and rife with fraud is not right, is not accurate journalism and just further fans the flames of negative perception surrounding bridging finance. The media should be educating brokers, not needlessly scaring them away from a product that is viable, for those who have security and a stable exit route.  

 

Bob added: "While not perfect, bridging is nonetheless vibrant, functioning and able to provide much-needed liquidity to struggling investors and SMEs. That's a great deal more than be said of other parts of the lending market. As it continues to develop, outsider comment and opinion should always be welcomed as long as it's fair, balanced and objective."  

 

Bridging finance is a workable financial solution for brokers’ clients, which fills the lending gap left by many mainstream banks. At a time when the economy is in a double dip recession and there are fears over the Eurozone crisis and domestic regulation proposals, the media’s reporting of and real perception of the industry is everything.

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