Buyer beware of lenders underwriting to security
Gavin Diamond is finance director at Cheval
A bridger’s lending criteria indicates to the market its appetite for certain types of security property. However just because a particular type of security is deemed to be generally acceptable doesn’t automatically mean that a lender will approve every loan secured on such a property.
There are a significant range of circumstances where a short-term loan is the perfect solution to a funding requirement but there may be occasions when a lender has to decline a bridging application despite the loan seemingly ‘meeting criteria’.
While it is true that bridging finance is asset backed and the security for the loan is an important consideration, it is certainly not the only factor.
Brokers should be wary of lenders that claim to make lending decisions purely based on the security property. To my mind this is not necessarily responsible lending.
Such lenders are in the minority but they do account for a number of cases that should arguably never really ‘see the light of day’. Such cases run a reputational risk for the whole of the industry.
At Cheval we come across deals on a day-to-day basis where the intended ‘exit’ for the client is very uncertain. In such circumstances we will engage with the introducer to explore ways to make the deal work.
However unless there are viable alternative exit strategies any responsible lender should walk away from the application given that the loan is probably not in the best interests of the borrower.
There will almost always be a valid reason why a lender has walked away from a particular case and, for this reason, the broker should think long and hard about whether short-term finance is suitable if the case has been declined by another bridging lender.
I have been made aware of deals completing were the odds were seemingly stacked pretty heavily against the borrower coming out of the process favourably.
Some may say that with non-owner occupied residential loans or commercial loans it is a case of caveat emptor or buyer beware. The business person in question is able to make his or her own decisions.
However in these times of increasing regulation where treating customers fairly is of key importance, such a stance could be viewed as an abrogation of responsibility.
There are undoubtedly cases that could be said to be unsuitable even though they are sold on a ‘non-advised’ basis. Who can say what the legal comeback on such cases will be in the future.