Fincorp predicts higher bridging proc fees in 2014
But the lender has also warned brokers to be wary of this tactic, suggesting that it will ultimately be the borrower who pays for the uplift.
The prediction comes from Fincorp director Matthew Anderson who admitted that the bridging market has grown rapidly over the past five years but “has probably reached a natural limit” in terms of straightforward bridging.
This growth has led to a much more competitive market for short-term lenders with various new lenders launching into the market even as recently as November 2013. As such, headline rates have dropped while loan to values have lifted.
Following a recent rise in proc fees at another lender Anderson said he could envisage other lenders following suit in 2014.
He said: “Brokers do a great job introducing borrowers to lenders and in some cases they do a considerable amount of work getting cases ready and packaged in a way that lenders are able to assess the deal more easily and quickly. For that they deserve to be paid a decent proc fee.”
But he warned: “I don’t think lenders are inflating proc fees at the moment but I am wary of this as a tactic to take market share when a sector gets heated. That could lead to bad outcomes for the borrower who in most cases will end up paying for that additional income.”
The warning comes as part of Fincorp’s predictions for 2014 in bridging.
Anderson has already publicly suggested there will be consolidation between lenders in the market over the next 12 months as competition continues to heat up. He said he expects to see more product diversification under the banner of bridging as well.
Anderson said: “We’ve already seen this start to happen in 2013. Lenders are innovating to fill new gaps in the market as old gaps are filled. I think we’re almost at a plateau for traditional bridging but there are obvious niches developing with lenders looking at more medium term products, heavier development finance and a growing appetite for more commercial type deals.”
He is also predicting a boost in second charge lending next year. He said while regulatory responsibility for this sector will move from the Office of Fair Trading to the Financial Conduct Authority in April 2014, thereby increasing compliance for firms, he doesn’t think it will cramp the sector’s volumes.
Anderson said: “I suspect this move will make doing these loans that much more cumbersome but there is an obvious demand for them in the market. As a result I think they will probably still go through – they may just take a bit longer to transact.”
Anderson also suggested that the market should watch out for even more new lenders piling into bridging next year.
Anderson said: “Fincorp has been approached three times in the past 12 months with funding lines to lend short-term secured on property.
“We have turned it down as the commercials don’t make sense and we won’t compromise our standards. But that money may show up elsewhere as the demand for returns is still strong. Short-term lending isn’t a golden ticket for investors though. It’s a business that takes skilled underwriting to get right. It comes back to that mantra – it’s easy to lend money and much harder to get it back.”
Overall Anderson said that these trends were a result of the positive tide of feeling that bridging has become much more mainstream over the past year or so and he attributed much of that success to the Association of Short Term Lenders.
Anderson added: “Our industry has been accused of throwing stones in the past but I think we are a much more professional sector nowadays. Lenders care about being transparent with the customer and broker and more deals are being done as a result.
“We’re looking forward to 2014 as the year that we, led by the ASTL, consolidate that reputation.”