If it takes longer than two weeks, then it’s not bridging finance
Christian Faes is managing director of Montello Bridging Finance
If a deal takes longer than two weeks to complete, from the moment that the bridging lender receives the loan enquiry, then you can’t call it bridging finance. That’s the new rule for the UK bridging finance market… or so we think it should be.
It is all too often that we receive a phone call to our offices from a borrower or intermediary looking for finance, and wanting to see if we can ‘beat the rate’ that they have been offered by another lender. Whilst the borrower needs urgent funding, there is also an urge to see if they can get a slightly better interest rate from a competitor.
The old adage that ‘if it sounds too good to be true, then it usually is’, is applicable to bridging finance the same as it is with most other things.
We will always want to see if we can do the deal. However, when we receive an enquiry where a borrower has received an offer of a bridging loan at a particularly low interest rate, we suggest that they go with that lender – if they are prepared to wait for the funding, and hope that it materialises.
Our irritation with this situation is that I would say that about 50% of the time, the borrower will come back to us a few weeks later. They will usually be entirely frustrated with the lender they had previously been dealing with, and will be wanting to see if we can now help them out. The issue the borrower now has, is that they originally needed quick funding, hence looking for a bridging loan. However, with two weeks pursuing the vapourware being promised by the other lender, they are now faced with a situation that is extremely urgent. In many instances, the situation that the borrower now faces is one of losing a deposit or the opportunity altogether – which makes the slight difference in interest rate being pursued a few weeks earlier pale into insignificance.
One recent example highlights the sorts of issues that borrowers chasing rate may encounter. The borrower in this instance had approached us with a deal that was in central London, and was at around a 60% LTV. It was a reasonable deal, and the rationale for the funding was sound. However, the borrower had been offered a rate that was closer to 0.0% than it was to the 0.99%/month we were prepared to do the deal at. We said that whilst we would like to do the deal, we couldn’t match the seemingly unbelievable rate offered by a competitor.
As we thought may well be the case, the borrower came back to us a few days prior to the set date for the completion of his property purchase. The lender that the borrower had gone with, was giving the borrower significant grief. There were a number of issues that the borrower experienced. Firstly, the 60% LTV being offered to the borrower was in effect somewhat reduced when the lender’s valuer said that he was essentially paying too much for the property. This brought the loan being offered to the borrower down to a 50% LTV. The borrower was able to contribute further funding to the purchase, and continued to legals.
The last straw with this particular lender came when the borrower was trying to satisfy the lender’s requirement to provide bank statements. The lender required three months’ bank statements (something that Montello, and many other real bridging lenders do not require). The borrower had only internet banking statements, but the lender was insisting that the borrower needed to provide bank originals. The borrower subsequently made an appointment with his bank, and obtained copies of his last three months’ bank statements. However, the borrower was flabbergasted to find that when he submitted these to the lender, the lender said that they would not accept them because in their opinion they had not been stamped correctly by the bank’s branch manager! Needless to say, the borrower was starting to wonder whether this lender really wanted to lend the money at all – and by this stage, all confidence had been lost.
Bridging finance is about being able to provide funding quickly. Mainstream bridging lenders, are not lenders of last resort. We are lending funds that are required urgently in order to allow a borrower to capitalise on a situation. In short: Interest rate should not matter – or at least, it should not be the main consideration. The performance and reputation of the lender should be the borrower’s (and the intermediary’s) principal concern.
Many of the recent headlines concerning interest rates for bridging finance, have actually helped our business – and we have not had to reduce our rates significantly. We have very flexible funding lines, but they are also funding lines from investors and institutions that are cognisant of the fact that we are a bridging lender (ie, not exactly LIBOR plus a few bips, unfortunately). However, the principal concern for us in our funding is to ensure there is flexibility, and access to the capital. This flows through to our deal underwriting; and gives us a competitive advantage over lenders that have obviously had bank-like underwriting terms written into their funding lines.
If a lender is going to require three months’ bank statements certified by a branch manager, a year or two of evidenced existing mortgage payments, or a three year trading record with accounts to prove it, then a borrower and their mortgage advisor should consider whether its really bridging finance. Whilst most borrowers may be able to provide this sort of information, the deal may come and go whilst a borrower is waiting for a branch manager to certify their bank statements, or for their accountant to collate and update the last three years’ accounts.
If a lender’s criteria is more akin to a bank loan, then maybe we should all just call it what it is. If it takes longer than two weeks – from the moment of that first phone call to the lender – then its just not bridging finance.