Eight years after the financial crash, much has changed in almost every space in finance - especially the bridging market. However, is its reputation still tarnished by a ‘back-alley’ perception?

“I do not think that any financial services sector is ever going to be in a position where it can declare ‘job done’,” declared Mike Strange, Managing Director of bridging lender Funding 365.

Mike, who has vast experience in finance having held directorship roles in major companies such as Goldman Sachs and AnaCap Financial Partners, has only been trading in the bridging market for the past three years, and therefore views the market with relatively fresh perspective. 

“The bridging market still has a shadow cast over it in the mass media given both historical (and in some instances, current) lending practices and, in my opinion, still has work to do to position itself as a mainstream borrower-friendly lending proposition.

“I believe that a bridging loan should really be held to the same standard of disclosure and fairness as a regulated mortgage loan.”

Mike believes that interest should be charged on a daily basis when a borrower repays early, credit cost should never be retrospectively changed if a borrower defaults, and interest rates and fees should be transparently disclosed on the initial Indicative Offer.

“I would really like the industry organisations (including the NACFB) to put [these changes] into their constitutions and only allow lenders that meet these basic standards to be members.  

“This will, in the long run, ensure that bridging is only conducted by reputable lenders with fair practices – which obviously will improve the reputation of our industry over time.” 

On the other hand, Mark Posniak, Managing Director of Dragonfly Property Finance, who has worked in the bridging market both before and after the global financial crisis, said that the market is now a “different beast” and therefore doesn’t need further attempts to improve its reputation.

“It’s considerably more transparent, much more stable and far better regulated. 

“The fact that lending volumes have been as high as they have shows this is a sector that is much more understood, recognised and trusted by borrowers and brokers alike. 

“I don’t think the sector needs to actively try to boost its reputation, but just carry on as it is. That in itself will generate all the credibility it needs.

Mark believes that if the sector continued on its current path, its reputation should “take care of itself”.

The cost of credit is one of the key issues when discussing consumer and broker confidence within the bridging market, with talks of products containing an annual percentage rate of charge (APRC) having gone on for years.

Mark, however, said it was important to remember that bridging loans were vastly different to a standard term loan. 

“Applying APRCs to bridges may sound great in theory, but in practice it’s hammering a square peg into a round hole.” 

Mark explained that a significant percentage of bridging loans lasted less than a year, resulting in the comparison losing credibility “instantly”.

“I agree that there needs to be transparency in pricing, and as an industry, that is something that could be improved.” 

Mike agrees with the sentiment, however thinks that an APRC is the most “sensible” route to conquer opaque costs.

“We have seen so many examples where it is very difficult for a broker to work out the cheaper loan [amongst] various options.” 

Mike explained that if one loan used the deducted interest methodology, and another had interest paid monthly, the cost of credit varied materially between the two, even on the same quoted interest rate.

“An APRC will make it clear to a broker (and borrower) which is the cheaper loan.

“It is now the case (by law) that brokers have to recommend the best available loan to their client.  I do not see how it is possible for brokers to do this unless we expect them to reverse engineer every bridging loan proposition they receive.  

“We feel that without a tool to compare across loan amounts and structures, brokers and borrowers are likely not in receipt of the full facts they need to choose the best loan for their project.”

While Mark thinks that most borrowers have a “half decent understanding of what APR means,” Mike thinks APRs being branded as ‘confusing’ is a myth “peddled by lenders”.

“There is not a single property professional investor in the world who doesn’t know that an APR of 10% means that this is a more expensive loan than one that is at 9%.

“The only logical reason for non-disclosure of the cost of credit is that you have something to hide. 

“Even recently a broker said to me that they don’t see why a bridging lender would disclose APRs to borrowers given they are so expensive. 

“Clearly, in my opinion, that is exactly the reason that you disclose the cost of the loan.”

SMEs have also urged lenders to reveal the true cost of lending by publishing APR a campaign which has been led by Growth Street.