Despite years of improving processes on delivery and IT investment, lenders and intermediaries are indicating that short-term finance deals are taking longer to complete. There is a strong belief in the industry that the main cause for increased completion times is the inefficiency, lack of experience and technical competence of the borrower’s solicitor.
However, new research from Brightstone Law reveals the most common cause for delays in short-term finance transactions over the last quarter* and the results contradict much of the general perspective view of the market. *(Source: Brightstone Law Audit of 200 short-term lending cases, July 2018).
Top 10 most common causes of delay (in the order of significance):
- Third party, external factors (e.g. Property chains, seller deadline)
- Lender red tape (e.g. Lack of empowerment at underwriting level, credit committee approvals, leaving issues identified early in the process until final credit approval stage)
- Borrower naivety/ inexperience (e.g. Inexperienced borrowers unfamiliar with what a lender will require or expect in more complex development cases – simply unprepared to borrow)
- Borrower delay in funding initial costs and valuation fees
- Miscommunication by intermediary
- Title / legal issues requiring solution
- Borrower solicitor inefficiency
- Valuation provided late in the process, raising issues requiring legal and other investigation
- Change in terms/ revised offers
- Use of 3rd party firms for ID verification
NB The data is derived from a broad range of deal and property types. The data does not represent whole of market, but Brightstone Law maintains the data can be valued as extremely representative.
Jonathan Newman, pictured, Senior Partner at Brightstone Law commented:
“The short-term finance market is complex. The sector services ground up development, heavy refurbishment, multi-security portfolios, difficult developments subject to all manner of planning and other issues. These deals are taking time and with good reason. They’re not simple. It’s no surprise that these transactions will and do take more time.
“But is it just the fault of the borrower’s solicitors, who I am commonly told, do not understand bridging, its nuances and timescales? Do they really know what to produce and when they do, do they operate to the timescales of all interested parties? We carried out some research as we wanted to see if the general perception matched reality.
“Our findings, based on facts and real case studies, show that the borrower’s solicitors inexperience is not the single most cause of delay. In fact, it’s pretty low down the list at seven and there are far more pressing and weighty influences that need to be dealt with. That should not be so surprising, given the nature of these transactions. The borrower’s lawyer is not actually required to solve issues, nor draft technically complicated pieces.
“More often in refinances, they are principally a post box, with added requirements of advisor, ID validation. In acquisitions, they simply supply copies of the documents that they will have, or should have, in their possession in any event.
“At Brightstone, we can and do, seek to manage these lawyers new to short-term finance through the process. Most are receptive, cooperative and grateful.
“There is danger in believing all you read and hear on completion times. The industry needs to resist rushing into perceived solutions, which may at first glance present as a cure-all, when in reality, the problem more often than not, as we have found, lies elsewhere. The suggested remedy (such as panel imposition, dual representation) is not necessarily a remedy at all and can have more wide-ranging damaging side effects.
“The solution rests in greater cooperation between all parties involved in short-term finance deals. It’s incumbent on all the stakeholders including lenders, lawyers, valuers and intermediaries to look inwards. Are their processes as efficient and streamlined as they believe them to be? Is decision-making quick and decisive? Are decisions communicated to the right people and on time?”
Brightstone Law is urging greater collaboration between lenders, solicitors, conveyancers and insurers to speed up application to completion times.
Brightstone Law is widely recognised as the leading law firm in bridging, mortgages and loans. The firm has over 25 years’ experience in bridging finance and offers technical competence, together with practical guidance, which comes from unrivalled experience in this area of lending.
In addition to its property finance team, Brightstone Law, has a leading reputation for advising on recoveries and litigation, having successfully pursued possession claims, receivership claims, insolvency actions, actions against professional service providers (lawyers and surveyors) and land registry indemnity claims.