Page 42 - Bridging & Commercial Magazine Issue 5
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 current hunt for yield that’s occurring in the asset management, hedge fund and banking sectors—could have more detrimental effects. “At this stage, many bridging lenders sell their loans almost immediately upon completion,” explains Mike Strange, managing director at Funding 365. So, while it is extremely easy to launch a lender, he believes that companies are susceptible to overnight collapse if their institutional backer has a change of view on the business or overall sector. Just one bridging lender losing their funding and having to withdraw from the market, either temporarily or for good, could impact swathes of brokers and their clients and cause strain on the parts of the market which are operating responsibly. If funders are able to drop and leave the market just as quickly as they enter, this could be even more problematic for the industry. IF BARRIERS TO ENTRY STAY THE SAME, WHAT WILL THE FUTURE OF THE BRIDGING MARKET LOOK LIKE? With an increase in lending businesses operating in the market, we will naturally see more people attracted to working in it. Zuhair tells me that, in the long term, this will mean that the number of experienced professionals will grow and that the overall quality of skilled professionals in the industry will improve. However, as we are unsure how long it will take to build up our sector’s workforce, there could come a point where there is simply no more business available for new lenders—a stage which Sam believes we are perhaps already getting close to. “Hopefully, you would think the longer a lender stays in the market, the better their \[standards get\]—but this will not always be the case. And with more competition at the low end, you’d also like to think this would cause an \[uplift\] in overall standards \[there\], but I’m not seeing this enough at the moment unfortunately.” When I ask what he considers as “low standards”, Sam says these include not sticking to the terms laid out at the beginning of a deal and changing the goalposts before completion. “Essentially, a lack of integrity,” he argues. “Some lenders will go back to credit after the client has paid a lot of money out based on credit-backed terms already issued. This is by far the worst thing a lender can do.” Other lender practices which are considered negative in the market include poor risk assessments, unrealistically high risk appetites and LT Vs, additional fees, lack of transparency regarding process and terms, and unsustainably low interest rates. “In a market where competition for business is already high, such practices can create unrealistic expectations from brokers and borrowers,” says Andy. Tracey explains that the availability of experienced underwriters will get smaller through demand as more lenders will find they are fishing in a smaller and smaller pond. “Most big banks consolidated their teams some time ago and got rid of many underwriting staff so there is now a smaller pool of qualified underwriters. This means all bridging lenders need to invest more in internal training and development or else they will discover the consequences of their loans not being underwritten correctly.” Phil adds that clients and brokers remain loyal to the lenders that always deliver and are trustworthy. “ Those lenders that don’t do this won’t have longevity.” Clare admits that the bridging and development industry still has a bad reputation among those who know little about it. “New lenders entering who may only be interested in making high returns with little thought for the people they are lending to only exacerbate this.” Roxana Mohammadian-Molina, CSO at Blend Network, adds that the danger is seeing inexperienced lenders taking high risks at the wrong price and potentially going into administration. The problem is, how many clients will be affected by less professional players before they disappear? WHAT COULD BE INTRODUCED TO HELP RAISE THE BAR, AND IS IT EVEN ACHIEVABLE? While the industry has grown massively in recent years, it has barely changed in terms of formal standardisation and self- regulation. “Right now, it’s not so much a case of raising the bar as finding \[it\]— because there isn’t one,” states Mark Posniak, managing director at Octane Capital. However, this doesn’t mean that the industry hasn’t tried. As far back as 2014, I wrote an article for B&C about an IFS- backed bridging qualification. The majority of attendees at an Association of Bridging Professionals (AOBP, now FIBA) forum had approved the concept of an accredited training programme for professionals in the short-term lending industry. The idea was to increase the knowledge and awareness of bridging and its appropriateness as a form of self-regulating the sector. Unfortunately, the exam never got off the ground. One issue at the time was that there were only a limited Cover story   Bridging & Commercial 40  

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