Although figures from the Association of Short Term Lenders (ASTL) showed the value of completions dipped in Q2, this was not the situation at Hope Capital and overall the trend is up.
In a recent broker survey carried out by Hope Capital, 90% of brokers said they expected the level of bridging finance they do to increase over the next 12 months.
However, there are also reasons to be cautious and for brokers to be wary about just which lenders they are placing business with and maybe the ASTL figures are a reflection of this.
Analysis by Plimsoll, which studies the company accounts of the top 108 bridging companies, showed 44 lenders selling more than last year, 38 saw their overall performance improve, while 27 improved profit margins.
Lenders in financial danger
What is concerning however is that it also showed that 36 bridging lenders are now in financial danger.
We know how vital it is that lenders carry out proper due diligence on borrowers and deals they lend against.
This data really highlights how important it is that brokers also carry out due diligence on the lenders they are working with.
No broker wants to put a lot of effort into placing a case, only to find out that they are not paid their proc fee because the lender’s accounts are not robust enough.
In the Hope Capital survey brokers said their top three priorities were higher loan to values (LTVs) (52%), lower interest rates (48%) and better speed of service (47%).
While rates need to be competitive, there is a danger in lower rates for all but the most mainstream of bridging cases, simply because lenders price for risk.
Those who lower rates to get business at any cost could well be one of the 36 companies classified as being ‘in financial danger’.
Getting fingers burnt
This is not to say a competitive market is a bad thing; bridging rates have dropped significantly over the past few years to be far more affordable, which no doubt has led to the steady increase in both the number and value of bridging loans.
While LTVs continue to hover at about 75% for residential and 65% for commercial loans, even prudent lenders will raise this for experienced borrowers who require the loan to add value to a property, with expectations that the LTV will have lowered significantly by the time the project is completed.
Broker knowledge that a lender will do this can be key to their client getting a loan or not.
Hardly any bridging lenders have criteria that cannot be waivered for the right client and the right deal with a good exit strategy for the loan.
Where brokers need to be more wary is with the lenders lending at high risk for low cost as this could well be a risky strategy that involves more than one person getting their fingers burnt.