Bridging loan default rates rarely necessary
Default rates are a hot topic but should rarely have to be enforced with the right client engagement, according to Oblix Capital.
The Financial Intermediary & Broker Association (FIBA) recently announced that it would start publishing lenders’ default rates in its online lender directory, following concerns about the default rates charged by some lenders.
Oblix Capital fully supports this initiative and any steps to enhance transparency, professionalism and the reputation of the industry. However, it believes that while greater transparency is required, lenders should always prioritise client engagement to find an alternative approach. Default rates should only come into force as a last resort, once all other options have been exhausted.
Andy Reid, Sales Director Intermediary and Network at Oblix Capital, said:
“We clearly communicate any default rates that are applicable on our loans, but we only ever charge them as a last resort. As the end of the facility term approaches, we would much rather engage in discussion with the borrower to identify whether repayment of the facility is likely by the due date and, if not, we explore alternative options. If, for example, there is a viable, but slightly later exit plan in place, we could extend the existing facility without incurring any default charges. Alternatively, we could look to re-structure the loan, perhaps by moving to a different product.
Caroline Barlow, pictured, Director of Credit Risk, added:
“It is important that we are discussing the transparency of default rates as an industry, but we should also consider how they are used and what steps a lender takes ahead of deploying any extension rates. A responsible and flexible lender should always explore alternative options with the borrower before the default rate ever needs to be invoked.
“Default rates help to focus the mind of a borrower as they approach the term end of a facility and encourage them to discuss alternative options before it’s too late to do so. With the right client engagement at the right time, a default rate should serve as a warning signal rather than a punitive charge.”
Oblix Capital also offers a range of Refurbishment and Permitted Development bridging products.