The suggestion from some brokers is that overall, finding lenders that are prepared to offer higher LTVs is difficult and that access to these types of deals should be easier.
However, I don’t think this is a particularly helpful discussion.
Over the past few years, bridging has become a much more mainstream source of finance, especially as the uses for bridging has started to shift more towards refurbishments.
As a result of bridging’s increasing popularity, we are understandably seeing an increasing number of bridging lenders coming into the market.
However, many of these new bridging lenders are tick box lenders, which means they may be able to offer good rates, but only if the client meets the criteria set by whoever is actually controlling the purse strings.
Most of these types of lenders have to look to outside sources for their funding, and when you obtain your funds from someone else, they will put restrictions on that money. More often than not, these restrictions will be around LTV.
But a principal lender, like Hope, has its own funds and is, therefore, able to make a decision about each individual client based on its individual circumstances.
Therefore, rather than saying, in general LTVs should be X, we are able to set the LTV based on each individual case.
So while in general, I don’t think bridging loan LTVs should be higher – it just increases the risk – that doesn’t mean higher LTVs should not be available.
At Hope, we look at every case on its own merits, which is what you do if you are a prudent lender.
Rather than making a sweeping statement about the bridging industry, and saying that LTVs need to be higher, what we need to do is highlight the benefits of borrowing from a principal lender that can make its own decision. Rather than treating a case as a box ticking exercise, lenders need to be looking at the borrower’s circumstances and making a decision based on the risk attached to that case.
Case by case basis
For example, we recently had a case with a client we knew well who had a lot of experience in refurbishing properties to increase their value significantly. In his case, we were prepared to offer an LTV of 87% because we were confident that the property would be worth considerably more once the refurbishment was completed.
And in fact, once the project was finished the LTV dropped to 50%.
But that doesn’t mean we would readily offer 87% LTVs. In fact, I am not sure there should be any standard LTV because it is ‘tick box’ lending that tends to cause problems.
I think bridging lenders need to set their broader LTV limits based on what is comfortable for them, but that individual LTVs still must be set at a sensible level for each loan.
For example, if a higher LTV is agreed, it is important that the other criteria of the loan is set accordingly.
If, in order to balance the risk of a higher LTV, rates are too high or restrictions are too stringent, making it difficult for the borrower to exit, the advantages of taking on a higher LTV product in the first place are quickly lost.