Page 62 - Bridging & Commercial Magazine Issue 5
P. 62

 LS: ...There are going to be certain bridging lenders ... In my view, you’ve got your very prime bridging lenders that are also lending across other parts of the market, they’re large, corporate names; then you’ve got a second tier that are maybe very strong, they’ve got a good reputation, but they’re lending maybe just in the bridging market; and then you’ve got this other pocket of lenders. I’ve come across some crazy things ... \[some of these lenders will\] take a telephone number from a broker, contact the client and do it all, and give the broker 2%. CS: And advertise it on LinkedIn... (laughter) LS: There’s no advice given to that client whatsoever, but the broker is still pocketing the same amount of commission as they would do if they were doing the right job for that client. CW: 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. A great example of this is one lender, not so many years ago, said, ‘Right. This fees thing is a nonsense. What we’re going to do is come out with a headline interest rate, there’ll be no arrangement fees, no exit fees, we’ll pay our own legal fees, we will pay the valuation fee.’. . . we think that’s a really fair and great way to do it and innovative in the industry. So, they put it out there. Obviously, the headline rate has to be higher than everyone else’s because there’s no fees. Try as they might, it did not work at all. They had that concept for literally weeks, a couple of months at most ... people just didn’t buy into it. LS: I think the same applies, though, to other markets, because lenders often have to have headline rates just to get to the top of the sourcing systems. If they’re not at the top, how are they getting known and recognised? Although, it’s different in the bridging market as you don’t have the same level of sourcing system\[s\]. But headline rates have always been the attraction. \[We teach\] our advisers to think mathematically about what is correct, so comparing the headline rate plus fees and spreading it over the likely term of the loan, or the product term rather, and then comparing that with others that may have low fees but a higher rate. And also understanding what your client wants: are they looking for the cheapest monthly payment, which could be the lowest rate, but not the lowest overall cost? “I’ve come across some crazy things ... \[some of these lenders will\] take a telephone number from a broker, contact the client and do it all, and give the broker 2%.” Simon Thompson: During our research for the default article \[Ed: also in this issue p28\], a lender I spoke to reported having brokers ask for proc fees to be removed from the offer to the client—what are your thoughts on this sort of thing? LS: Disclosing the amount of commission? I mean, I think disclosure is important because transparency is important, so if the broker is saying, ‘I don’t want the client to know what I’m getting,’ I would be concerned about that. You have to \[include that information\] in other markets, so why would you not in bridging? CW: The majority \[of lenders\] do, but there are many that don’t. Speaking to the ones who don’t, \[they\] feel they would like to do it, but feedback from some of their brokers is, actually, we wouldn’t give you the same level of business if you disclose these fees. CS: Ultimately, the borrower, in this instance, doesn’t know what their broker is making out of the deal (despite this cost being something represented in/factored into the overall cost to the client). CW: No. The broker is still free to disclose it, but they’re not under any obligation to do so. LS: Unless it’s a regulated mortgage, you’re in a completely unregulated market, which is where a very large proportion of bridging sits. CS: An educated borrower would surely want to see terms from a number of lenders? LS: Borrowers don’t generally get to see the research that the broker has done, but they get to see a final illustration ... \[compared with KFIs in the BTL market, for example\] in the bridging market, they’ll get a two-page terms document, or a bit more when they get the formal offer from the lender. CS: Isn’t the fee a broker earns indicative of the reasons why they made that lender choice? So, as a borrower, am I not able to insist on knowing that information? LS: Brokers who are doing the right job by their clients, will \[disclose the fees\]. Because the market is not regulated, there isn’t a regulatory obligation to do so, other than when it’s a residential bridge. If you’re a broker in the regulated Interview    60  Bridging & Commercial 

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