Page 60 - Bridging & Commercial Magazine Issue 5
P. 60

 “Fee-taking is a problem. While no one is necessarily hiding it, whether we like it or not, based on my experience, both borrowers and less wary brokers are very headline rate driven” they’ve lost a survey fee or that it might be refunded to them, it’s that they might have lost six to eight weeks’ worth of underwriting getting to that point. The strength, flexibility and range of funding options, for me, is quite important. Also, particularly in the bridging market, what do they do in situations of default? How flexible are they, what extra fees and costs will they apply, will they extend? I have seen circumstances where clients have fallen into trouble through no fault of their own ... it’s understanding what that bridger is likely to do in those scenarios and what options that client will have. CW: I think the market tends to be quite incestuous anyway, so anyone new coming in, if they haven’t made a big fanfare about it in the press (which most do), the first thing you do is check them out. Who owns the company? Who’s working there \[and\] where were they before? It almost rings alarm bells, if \[no one seems to know\], after making a few calls to other brokers ... The industry is quite close knit. LS: I agree, but there are also lots of pockets of private, bridge-type funding, where people have got a few million pounds and they’re going to do some bridging. We get approached every week by somebody with some funds who wants to be able to access our distribution and lend. When you dig a bit deeper, \[they\] don’t want you to market it to the whole of the network because actually \[they\] can’t cope ... You’ve got to be wary of \[this\] if you’re new in the market because a lot of those \[lenders\] will be trying to tempt brokers, potentially with high commissions etc. CW: Sometimes it can work in the broker’s favour, though. Quite often, you’ll get someone come into the market and they’ll approach you and say, ‘Look, we’re not lenders per se, this is the background to the family or company and we do manufacturing or something like that, but because of our background, we have a very good insight into, say, commercial warehousing or light industrial, and actually...we’d like to lend money secured against an asset class which we understand.’ I don’t think there’s anything wrong with that and it can be quite useful. LS: We’d approach \[unbranded lenders\] with caution because generally if they have a limited pot of funds, I have seen them be more aggressive when it comes to situations like default. CW: It all comes down to value-add: what value are you giving me and my client, the borrower, over and above any other options in the industry? LS: Service, usually, they say... C W (pauses): Yeah. . . (laughter) CS: Liz, on funding and default fees, do you think these are the kinds of things that every broker, as standard, should understand? LS: I think it’s something the industry should look to try to standardise because when you are dealing with a BTL or residential mortgage, you get a set of terms that (using the KFI, for example) tell you all the things you need to be aware of in a standardised format—but we don’t have that in the bridging market. Therefore, it’s difficult without a broker a) understanding what the terminology is and b) then asking the right questions. \[For example\], is interest being rolled up? Is there the possibility it could be serviced? Is it an interest rate that’s been discounted and if you go into default, are you going up to the standard rate? Or is there a default rate that’s been added? Those sorts of things are the questions that I feel advisers should be asking before they make a recommendation. It might be that they’ll still make that recommendation, but it’s about letting the client be aware of what’s going to happen in the worst circumstances. CW: I think it’s essential for us to do that; we charge fees for our services— that is what the borrower is paying for: your advice, your knowledge of the marketplace... At the end of the day, what any broker wants is to protect the lender and the client as well; nobody wants to have an unhappy lender or client. CS: Has the lack of transparency around default fees increased with the number of lenders in the market, or has it always been an issue? LS: With the number of lenders in the marketplace and the increasing amount of loans, it’s just more at the forefront of people’s awareness ... they’re having to ask those questions and understand it a bit more. CS: Would you venture to say that with so many lenders in the market, that margins are compressed and fee-made profits are going up? Interview    58  Bridging & Commercial 

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