After breaking the news last week that Precise Mortgages and Brightstar Financial had completed their largest ever joint deal - a £15.15 million bridging loan - B&C heard from Alan Cleary, Managing Director at Precise Mortgages, not just about how much money the borrower saved, when compared to other lenders, but also how much consumers could save per year.
The Loan in Question
Precise completed the loan on a high-end residential property in prime Central London, which was packaged by Brightstar.
|
Net Loan (NL) |
£15,150,000 |
|
Fee (F) |
1.5% |
|
Monthly Rate (i) |
0.70% |
|
Term (Months) (t) |
12 |
Alan Cleary explained: “The customer is better off with us to the tune of £94,803 when compared to the vast majority of bridging lenders, even though other bridging lenders may report to be charging the same rate. The APR for this deal was 10.5 per cent with Precise Mortgages and the reason that other bridging lenders will not agree to quote an APR is that it would not reflect favorably for them. It is not in their interest to be transparent about their charging methods.
“Here are the differences in our interest calculation method versus the rest of the bridgers. It seems that some lenders and trade bodies are shying away from this issue by putting up smoke screens and using diversion tactics.”
|
Precise |
|
|
|
|
|
£ Fee; (FP) = (F) x (NL) |
£227,250 |
|
Interest Bearing Balance = NL + FP |
£15,377,250 |
|
|
|
|
Retained Interest (RI) = ((NL) + ( FP)) x ((1 + i)t-1) |
£1,342,597 |
|
|
|
|
Gross Loan (GL) = FP + NL + RI |
£16,719,847 |
|
CMS = RI / t |
£111,883 |
|
|
|
|
|
|
|
Total CMS = t x CMS |
£1,342,597 |
|
Loan + Fees = NL + FP |
£15,377,250 |
|
|
|
|
Total Paid by customer = NL + FP + (t x CMS) |
£16,719,847 |
|
Competitor |
|
|
|
|
|
£ Fee; (FP) = (F) x (GL) |
£252,219 |
|
Interest Bearing Balance = NL /(1 - F - (i x t)) |
£16,814,650 |
|
|
|
|
Retained Interest (RI) = GL x i x t |
£1,412,430 |
|
|
|
|
Gross Loan (GL) = GL + FP + RI |
£16,814,650 |
|
CMS = RI / t |
£117,702 |
|
|
|
|
|
|
|
Total CMS = t x CMS |
£1,412,430 |
|
Loan + Fees = NL + FP |
£15,402,219 |
|
|
|
|
Total Paid by customer = NL + FP + (t x CMS) |
£16,814,650 |
|
|
Interest Charge |
Facility Fee |
|
Precise |
£1,342,597.88 |
£227,250 |
|
Competitor |
£1,412,430.63 |
£252,219 |
|
Difference |
£69,832.76 |
£24,969 |
Looking at a Typical Deal
Alan added: “On a typical deal of £250,000 over eight months at one per cent per month borrowers would be £1,649 better off with Precise Mortgages.”
|
Precise |
|
|
|
|
|
£ Fee; (FP) = (F) x (NL) |
£30,000 |
|
Interest Bearing Balance = NL + FP |
£1,530,000 |
|
|
|
|
Retained Interest (RI) = ((NL) + ( FP)) x ((1 + i)t-1) |
£94,125 |
|
|
|
|
Gross Loan (GL) = FP + NL + RI |
£1,624,125 |
|
CMS = RI / t |
£15,687 |
|
|
|
|
|
|
|
Total CMS = t x CMS |
£94,125 |
|
Loan + Fees = NL + FP |
£1,530,000 |
|
|
|
|
Total Paid by customer = NL + FP + (t x CMS) |
£1,624,125 |
|
Competitor |
|
|
|
|
|
£ Fee; (FP) = (F) x (GL) |
£32,608 |
|
Interest Bearing Balance = NL /(1 - F - (i x t)) |
£1,630,434 |
|
|
|
|
Retained Interest (RI) = GL x i x t |
£97,826 |
|
|
|
|
Gross Loan (GL) = GL + FP + RI |
£1,630,434 |
|
CMS = RI / t |
£16,304 |
|
|
|
|
|
|
|
Total CMS = t x CMS |
£97,826 |
|
Loan + Fees = NL + FP |
£1,532,608 |
|
|
|
|
Total Paid by customer = NL + FP + (t x CMS) |
£1,630,434 |
Assume the industry hits £1.5 billion
Alan went further and highlighted what would happen if the market size hits £1.5 billion and all bridging lenders adopted the same interest calculation method as Precise Mortgages: “Consumers would stand to save £6,308,952.19 per annum!”
|
Comparison |
Precise |
Competitor |
Paid to Precise v Competitor: |
|
|
Fees Paid |
£30,000,000.00 |
£32,608,695.65 |
-£2,608,695.65 |
|
|
Interest Paid |
£94,125,830.42 |
£97,826,086.96 |
-£3,700,256.54 |
|
|
Total |
£124,125,830.42 |
£130,434,782.61 |
-£6,308,952.19 |
|
|
Equivalent Rate required for Competitor to match Precise |
1.00% |
0.94% |
-0.06% |
|
|
Equivalent Rate required for Precise to match Competitor |
1.07% |
1.00% |
-0.07% |
|
Alan explained: “The nub of the issue is that a broker has no way of comparing costs because most bridging lenders do not give enough information out to compare the deal. This is wrong because the broker and customer usually find out after they have paid valuation and legal fees. Full product disclosure needs to happen before the customer commits themselves, financially or otherwise.
“I call on the astl and the other bridging lenders to come clean about their interest charging methods.
“The only way to deal with this issue is for the FCA to regulate bridging lenders and bring in a way for customers to be able to compare the true cost of bridging loans, such as KFIs and APRs.”
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