Page 39 - Bridging & Commercial Magazine Issue 5
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 Richard Tugwell, group intermediary relationship director at Together, feels that with the current funding options and regulatory model, bridging is often seen as an “entry-level” product for new lenders. “Some move from this into more complex unregulated bridging and further into the regulated bridging space.” Considering the bridging market is usually branded as intricate and specialist, it’s ironic how simplistic it is to stroll in and lend. Some natural barriers to entry include hiring experienced staff in key positions in an already-stretched talent pool and achieving critical mass with market share. While the greatest initial challenge is said to be around raising capital, the combination of investors having been starved of yield for a long time and the attractive rates on offer in bridging is making this less of a constraint. “Lenders in the bridging market can find fairly cheap and easy money to lend out, making it easier to enter the market,” says Phil Derbyshire, managing director at Goldentree Financial Services. Zuhair Mirza, principal at Avamore Capital, adds that the bridging finance business model has a very scalable cost base and, as a result, it is easier to enter the market because there aren’t any huge upfront fixed costs. “In addition, \[bridging\] lending is a collaborative process and it gets a great deal of support from professional services. Newer entrants and lenders can benefit from learning and growing from other service providers in the deal chain, which will help them get up to speed if they are new to the market.” As long as the market is so hospitable, it’s unlikely that the influx of new entrants will be stemmed. WHAT IMPACT IS THIS HAVING ON THE BRIDGING MARKET? The higher level of competition has meant that there is more awareness of this type of product in the wider broker community and borrowers are now benefiting from a fairer market with a range of product options suited to their specific needs, and lower costs. This also includes more accessible finance in niche areas of the sector. Some of the new players can in fact be credited with bringing up the professional standards in the industry. “While a lot has been said about new entrants driving the rates down, it also keeps lenders on their toes about their service levels, use of technology and many other factors,” says Claire Newman, head of lending operations at Relendex. Gavin Diamond, commercial “You would think the longer a lender stays in the market, the better their standards get— but this will not always be the case” director—bridging at United Trust Bank, explains that if the market consists of the same incumbents, there will naturally be some competition between them, but a new entrant coming in and shaking things up encourages the pace of change. However, new lenders which want to stick around will need to spend enough time, effort, money and resource to ensure their offering is sustainable. Brokers are much more likely to work with lenders which they know, or believe, are in it for the long haul. “Although it might be easy for new lenders to launch, you have to consider how viable they can be in the long term without the right funding at the right price, the right staff and new products,” says Lorraine Hart, head of underwriting at Roma Finance. The main cause for concern with having such low barriers to entry is the possibility of attracting opportunistic lenders who don’t fully understand the market and want to make a quick buck. One worry, I am told, is that new entrants could have onerous terms, such as high default rates and other fees in order to bolster profitability. “Some of them act like used cars salesmen and have little understanding of the actual market and are just desperate to get indicative terms out within 15 minutes of an enquiry,” claims Peter Black, managing director at brokerage Snowball Alternative Finance. “I would rather wait a day and have a set of terms where the lender has bothered to take the time to read and understand the proposal we have sent them.” Colin Anderson, executive director at LDNfinance, says that his main apprehension revolves around the lenders who enter the market without having the right processes in place. “\[For example\], inexperienced underwriters who have only underwritten traditional banking finance.” I am told that new lenders could lack the Cover story     37  Sept/Oct 2019 

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