As a result of Covid-19, many brokers may be facing issues with bridging lenders and their policies regarding borrowers’ liquidity issues. Increasingly, we are seeing commercial and residential landlords, investors and developers facing rent arrears, or extended void periods; difficulty raising funds to exit loans as a result of lower property prices and slowing demand; and a continued lockdown delaying development sites opening up again.
During this challenging time, brokers need to be working closely with lenders and borrowers to find the right finance solutions to solve some of the issues they may be facing. This could entail deferring interest payments; extending redemption dates; renegotiating loan terms; or refinancing with a new lender that is still open for new business. Hopefully your lending partners will try to be accommodating and look at the longer-term picture instead of looking at strictly enforcing agreements.
However, if brokers can’t have constructive, helpful dialogue with their lender, should they be looking for new partners to solve current issues, or for when the market recovers?
Covid-19 is an opportune time for brokers to review their lending partners. The choice of bridging lenders has surged over recent years and with that, bridging loan books. According to figures compiled by auditors from data provided by members of the Association of Short-Term Lenders (ASTL), loan books grew to £4.5billion in 2019, an increase of 19.7% compared to 2018.
Short-term commercial lending is regarded as the last area of unregulated lending. It has been relatively easy to set up a new lending business, especially when there has been increased volumes of finance being redirected into the short-term lending space from challenger banks, hedge funds and private investors.
Unfortunately, the majority of these new bridging lenders don’t have deep experience in the bridging market and have far less underwriting expertise than established lenders. What is deeply concerning is that some of these new, less experienced lenders are taking on higher loan-to-value ratios and have books with significantly larger loan sizes than average. Further research from the ASTL shows that the value of loans in default grew by 13.2% on Q3 2019. The value of loans in default has continued to rise and there is some evidence that repossessions are also increasing.
Brokers need to be aware of lenders offering low headline rates as they may be hiding the true cost to the borrower. This can become misleading for brokers and borrowers, particularly around the cost of a loan over the whole term, as costs may well not be as transparent. These hidden costs may include various fees, exit penalties, charges on temporary default and the lender’s approach to charging any default interest rates.
A good place to start the search for a lender is industry associations, such as the Association of Short-Term Bridging Lenders (ASTL) or the National Association of Commercial Finance Brokers (NACFB). Their members feature hundreds of large and small lenders, who uphold the industry standards and requirements in their processes and practices, ensuring they operate both professionally and responsibly.
Agam Jain, Managing Director, Vector Capital