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ASTL dodges fair charging in bridging

The Association of Short Term Lenders has dodged industry calls for a standard way of disclosing charges to clients.



Sarah Davidson, 2 May, 2012

At the start of March this year outgoing ASTL chief executive Adrian Bloomfield told industry leaders he would raise the issue with the executive committee.

But a spokeswoman for the ASTL said today that the issue of fair charging had been dropped until a replacement was found for Bloomfield.

Meanwhile there have been suggestions that all lenders should publish an annual percentage rate which would allow borrowers to compare the cost of all deals across the market - regardless of how they charge fees and interest.

APR was introduced in the mainstream mortgage market in the 1990s to provide a standard allowing borrowers to compare costs between lenders.

It is calculated using a standard formula prescribed by the UK's Consumer Credit Act Commencement No. 6 (1980).

If the term is less than a year the APR is calculated on an annualised basis over 12 months.

Martin Reynolds, chief executive of SimplyBiz Mortgages, said the current debates circulating within the bridging industry felt like Groundhog Day.

He said: "These are the same debates we were having in the mainstream market in the late 1990s.

"Standardising the basic aspects of the bridging process will enable true comparison but should not stifle innovation."

Steven McColl, investment partner at bridging specialist Soho Corporate, said several short-term lenders already published APRs including Lancashire Mortgage Corporation, Affirmative Finance and Capital Bridging.

McColl said: "I would be supportive of APR publishing as it would help demystify our sector. Currently there is often a lot of explaining to do to clients in terms of rate methodology."

Precise Mortgages has also moved to publish APRs on both regulated and unregulated bridging deals.

Precise managing director Alan Cleary said: "APRs were brought into the mainstream market to stop these sorts of issues back in the 90s.

"It's a standard calculation produced for every deal and would be truly transparent and good for customers on both regulated and unregulated transactions."

Chris Borwick, associate at SPF Short Term Finance, said some standard method of disclosing charges would be helpful.

And he added: "I've never been a fan of APR but if there were a standard way of calculating the interest this would be a step forward."

But several bridging lenders shrugged off the idea as irrelevant to the short-term market.

Bob Sturges, head of communications at Omni Capital, said: "As it develops and matures the sector is adopting many of the standards apparent in the mainstream market.

"But direct cost-of-borrowing comparison in the form of APRs is not, I would argue, a pressing or even relevant issue.

"Were APRs to be adopted in bridging I doubt they would have a material effect on customers' buying choices.

"Nor do I think they are a usefully representative measure of what a short-term facility can provide."

Yasin Patel, director at Mayfair Bridging, agreed saying price was less relevant than speed of transaction in bridging.

And he added: "I believe most bridging lenders I know are clear and transparent in which they charge. We don't have small print in our contracts everything is very clear."

Steven Nicholas, chief executive of Tiuta, said pricing for risk is often applied in bridging making the publication of "comparable rates" both "difficult and potentially misleading".

But he said: "It would not be unreasonable to have APR as a basic standard but the potential for constant changes might make it unworkable."

And Gavin Diamond, finance director at Cheval Bridging Finance, added: "Depending on whether the borrower is seeking a three, six or 12 month loan, the APR could be very different.

"It is for this reason that it's not relevant for bridging lenders to advertise APRs as it depends on the length and nature of the deal that the borrower is seeking funding for."




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1 Comment(s)

Industry Observer wrote:

If you select a bridging loan based on APR as a comparison this might be a useful tool if the loan was kept for the term quoted. However bridging loans are very rarely kept for the full term - many repay early and many repay late. The impact of repayment date could significantly alter the actual APR and may mean that a different loan that appeared to have a higher APR to start with may have worked out cheaper. The impact of charges and short terms have great significance for APR's. Whilst it is right that the industry should have this debate it is not a quick and easy fix. All FSA and CCA regulated loans will have an APR quoted. FSA loans also have a total of borrowing and cost per pound lent although it is believed that there are differences as to how some firms calculate these. No doubt the new astl incumbent will have his work cut out in trying to find a basis that will actually mean something!

Tuesday, May 08, 2012 7:15:49 PM GMT

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