So October 31st has come and gone without a Brexit deal and now we are facing a general election and waiting to see what will happen at the end of January. To paraphrase a recent BBC news broadcast, never before has business been so affected by political shenanigans as it is now.
Where bridging lending is concerned it does mean that lenders have to be prudent when making decisions. They may well come to the same lending conclusions as before but it is sensible to do pertinent due diligence, looking both at the borrower’s background, affordability and their ability to exit the loan, as well as the property. Every lender will want to know that the exit strategy is sound and the property is capable of being sold – even in a softening housing market.
This is not to say that the property market will definitely soften or that prices will necessarily dip, but prudent lenders need to know, more than ever that there is enough equity in the property to recover the loan on a sale in six or 12 months even if property prices were to dip – be that commercial or residential property. This means that many lenders are being more cautious with their loan to values. Exits need to be strong, particularly when clients are refinancing. A lender’s criteria for a mortgage offer today may not remain the same beyond Brexit, so a common sense approach needs to be applied to the plausibility of the remortgage, with a Plan B or even Plan C exit strategy seriously be considered.
‘Know your customer’ also comes to the forefront, and brokers are a valuable asset in this. If a borrower is looking to do up a property, knowing whether they have a track record of doing this successfully will be key. While bridging loan rates have clearly been falling for some time, the experience and track record of the client in similar transactions will be reflected in the interest rates charged. The need to look at every loan on its individual merits has never been more important than it is today with the impending level of uncertainty that we face.
Political uncertainty however should drive brokers to look for established lenders with a variety of funding lines and also their own money to lend. After the referendum we saw a number of lenders withdraw from the bridging market because their funding lines were pulled, while some specialist lenders that had diversified their lending into bridging pulled out again as they found it no longer fit their risk appetite. The last thing that any broker needs is to place their client with a lender who is not going to be around for the duration of the loan – or even one who would be unable to extend the loan term should it be needed.
While low rates can appear extremely tempting, surety of funds, a lender which will do what it says it will and an ethical, honest and transparent approach has to be of the highest importance during times of economic uncertainty than the rate.
The ability for a broker to speak to the underwriter making the decision can be essential as it can help ensure that the deal goes through in the shortest possible time if, for example, more information is required.
While there is evidence that bridging cases are taking a little longer to get over the line at the moment, often this is down to the borrower or their solicitor not having all their information to hand or being slow at responding rather than it is down to the lender.
Brokers who can talk to underwriters and can gain their guidance for their clients right at the beginning of the process of what information they need to gather are worth their weight in gold. Of course it is helpful for the broker to establish exactly what collateral the lender will need right at the start as well. This is where transparency and a partnership approach is essential from lender and brokers.
Finally, technology needs to play a growing part in the bridging world. While the rest of the world has moved on, much bridging lending has stayed the same for twenty years or more. Technology can’t replace the individual approach of a hands on underwriter but the more forward-looking lenders will be automating the customer journey to speed up the process such as online credit checks and referencing, transparent online systems and video surveys which enable the lender to actually see the condition of the property at the first look which prevents the need for follow up visits and potential delays to the process.