When uncertainty lends itself to opportunity
Mark Bampton, managing director of property and funding solutions at City of London Group | 08:59 Wednesday 10th July 2019 | 4
With £5.5bn of lending and rates pushed low, the second half of 2018 may have looked like an unusual time to launch a new lender into the bridging market.
Particularly given the difficulties in assessing, with any certainty, the actual size of market, the number of lenders serving it and the rates at which deals were being completed.
Around 12 months on from setting up Property & Funding Solutions (P&FS) Ltd, a subsidiary of City of London Group, it’s proven to be an ideal time to enter the market, despite the odds appearing against it.
While barely a week goes by without a lender launching a new lower headline rate, our experience is that the interest rate charged is often the last thing customers are interested in. The three key criteria used for choosing a lender are:
Speed of delivery
Those borrowers using bridging finance are typically buying at auction, dealing with a chain in danger of collapsing, finishing a development or purchasing a property that will not secure a mortgage in its existing conditions. These are transactions which are time-critical for the customer and they are seeking a lender who can both decide quickly whether they can lend and then execute the finance at speed. These are often stressful situations which we can alleviate by moving at speed. This calls for a lender to take a pragmatic approach and focus on the key risk areas of a transaction, with other matters being ‘nice to haves’, not critical to the deal.
Access to decision makers
Many lenders will proclaim that they don’t credit score and that their loans are personally underwritten. While these are both important traits for a bridging lender, they are no good if there are layers of underwriters, heads of credit/lending, credit committees and, in some cases, having to go to the business founder for their agreement, too. We recognise this is time consuming, which is why at P&FS customers and intermediaries have direct contact with our executive team.
Certainty of funding
Professional intermediaries in the market are becoming increasingly wary of new entrants in an overcrowded market. While the sector has seen some useful additions, we have all witnessed lenders enter without adequate funding lines or the people and systems to manage those lines they have. This results in promises to customers being broken or offers being deliberately stalled as the lender seeks to buy time to extend lines or find new ones. During a recent conversation with the MD of a leading distributor, he remarked that he knew of less than half of the lenders in the sector and was only interested in dealing with eight of them. The clear message is that he is interested in those who can deliver, not those who talk about it.
Looking forward, we expect to see the market continue to grow into 2020 and, while we are sure there will be further new entrants, we expect to see some consolidation among existing lenders, and others to fall by the wayside.
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