Data from the law firm contradicts many of the market’s commonly held reasons for delays, which often centre on inefficiency, lack of experience and the technical competence of borrowers’ solicitors.
Instead, it is often third party causes which snarl up the purchase process.
The second and third most common reasons are lender red tape, such as lack of empowerment at underwriting level or credit committee approvals, and borrower inexperience which can mean unfamiliarity with what a lender will require or expect in more complex development cases. (See full top ten below.)
Brightstone Law analysed 200 deals of varying types and properties. It admitted that the data does not represent the whole of the market, but argued that could still be valued as “extremely representative”.
Short-term finance hurdles
Jonathan Newman, senior partner at Brightstone Law, explained why the short-term finance market seems to be complex.
“The sector services ground up builds, 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,” he said.
Newman noted that despite preconceptions it was not just the borrower’s solicitor’s fault.
“Our findings, based on facts and real case studies, show that the borrowing solicitor’s inexperience is not the single biggest 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,” he continued
“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.”
Instead, the firm is urging greater collaboration between lenders, solicitors, conveyancers and insurers to speed up application to completion times.
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