It has been an interesting start to the year. For us at Hope Capital the first couple of months were quieter than the past few years but it has been crazy busy ever since. It is almost as if people were holding their breath waiting for Brexit and then there was a collective exhale as people decided to wait no longer and just get on with their lives instead.
Indeed, it seems that the whole country is suffering from Brexit fatigue and everyone just wants it to be over, almost regardless of outcome. Certainly, the developers that we work with just want to get on with things. There is only so long that you can put your life on hold after all.
Fundamental facts still hold true; there is not enough housing in the country and this lack of supply is going to continue to push prices up as first-time buyers struggle to get on the housing ladder. This is unlikely to change in the next few months or even in the next few years and so the developer market holds firm, anticipating decent returns for well-developed projects. In fact there has been more of a push than ever to get bridging finance deals completed quickly.
Over the past few years, the start to the year has triggered something verging on a price war with bridging rates being slashed for a temporary period of time. The same pattern was seen this year although to a slightly lesser extent. With some lenders having funding lines pulled at the end of last year and the beginning of this, there was a wariness with slightly more of a focus on profit margins. No lender can afford to be in a loss-making situation and no broker or borrower should want them to be as it jeopardises everybody.
It brings home the priority that brokers and borrowers need to place deals based on surety of funds and the focus that lenders need to place on responsible due diligence. With that in mind, the themes for this year need to be:
Ensuring any lender that a broker places business with has a guaranteed source of funding. This will ensure that your clients get the money they need when they need it and that it remains in place for the duration of their project. Principal lenders with their own funds are always going to be the safest bet.
Is the lender in a position to make their own decision? If you submit a case to a lender and they say ‘yes’ in principle, does yes really mean ‘yes’ or is it a decision that an external credit committee will be able to overturn? If, as a broker, you have submitted comprehensive, accurate information, your credibility and reputation with your client then rests on the lender doing what they say they will and lending when they say they will. To a large extent this is linked to where a lender’s funds come from and how much autonomy to lend they really have.
While growing competition has meant that rates are ever-more competitive this will never be the ‘be all and end all’ in bridging. Surety of decision, surety of funds, flexibility over what they will lend upon and speed of turnaround are arguably more important than rate. Package this up with clear communication and transparency over terms and this should be the package that brokers are looking for in a lender this year.