Don’t get caught out by extension fees.

14 Jan 2019

Chris Buckley

by Chris Buckley

As the bridging market becomes more competitive, fees are becoming more important to brokers and their clients when they are looking at which bridging lender to use.

And while rates are undoubtedly an important factor when weighing up the pros and cons of each lenders’ offering, brokers should always remember that cheaper rates come at a price and generally, the cash saved in the initial rate is clawed back somehow, whether that be charges, default interest, or more commonly, in the form of extension fees.

Our approach at Hope capital has always been as a “hands-on” lender. We are a tightknit group and treat all our clients as individuals. We make it our duty to get to know our borrowers and their projects and stay involved within those projects so we know what is going on throughout the term of the loan.

Not only does this level of involvement ensure we are providing the very best service for our clients, but it also allows us to anticipate when a borrower needs some flexibility in their loan terms. For example, if planning has taken longer than it should have, or there has been a delay to the work on the property.

"We look at each case individually and have no standard extension fees policy."

Maria Magnussen, BDM

Most of our competitors have formal extension fees in place and as standard, will charge around between 2% and 5% on loan extensions, right from day one on any extension offered. These tend to be the lenders who have won the business through a market leading rate, but as the customer now finds out, are now clawing that money back through extension fees, even if the borrowers’ project has been delayed through no fault of their own and for a reason they have little or no control over. These default fees can rack up very quickly, and if the borrowers’ budget had not allowed for expensive fees over an extended period of time, could potentially put the borrower in financial difficulty.

We don’t work like that. We look at each case individually and have no standard extension fees policy.

We often work with clients to re-bridge a bridge and take the debt away from the current lender. By doing it this way, we can offer the ‘extension’ i.e. the new bridging loan, with an arrangement fee of 2%. Not only is this cheaper than the potential of 5% charged by some of our competitors – which is normally only for a 3 month extension – but it also gives the client a longer-term enabling them to get their exit strategy in place.

There are not many lenders that could or would do that. Most will take computer says no’ standpoint; if they had a bridge once and defaulted, why would we bridge them again?

But not us. We look at why the original bridging loan was not repaid in time, and if the client has a firm exit plan in place, we are happy to take it on.

"When someone is running a business and the bridging loan is to fund a business project, their ability to repay is often dependent on other factors."

Maria Magnussen, BDM

Due to the type of borrowers we are lending to and the nature of the projects they are funding, the need for loan extensions in professional, short-term lending is very common. When someone is running a business and the bridging loan is to fund a business project, their ability to repay is often dependent on other factors over which they may have very limited control. For example, delays in refurbishment work, problems with refinancing from the new, long-term lender, or more often than not, planning applications taking longer than expected.

For example, if someone took a bridging loan, they expected the planning application to be approved within 3 months, so they take a 9-month loan term, and the planning takes three times as long, they are going to need an extension. As we are working closely with them throughout the term, we can see that it has not worked out as planned. It doesn’t mean the money won’t be there, just that it’s not there yet. And when you get a client like that – someone who has to re-bridge a bridging loan – they tend to be very conscious of their situation, so are actually far less likely to default.

We regularly accept these extension requests and we assess each one on its individual merits and there is usually nothing to be concerned about from our point of view or the borrowers’. It is just a case of working together to find a solution that allows the borrower to get back on track and reach the exit strategy as smoothly as possible.

Chris Buckley

Chris Buckley

Chris will be the first point of contact for the growing numbers of brokers calling Hope Capital. He will be able to provide help and advice and information on exactly how Hope Capital can meet the demands of their clients. Speak with Chris directly by calling 0151 522 2585.

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