Arrears and default interest rates have been hotly debated in the bridging market over the last few months and now the adviser trade body has made its concerns public.
In its quarterly update AMI was confident that lax lending standards would not be an issue in the residential market, but raised the issue of the short-term sector, where it said arrears have risen and lenders are preparing for that.
“AMI notes that the incidence of arrears on short-term finance loans funded by peer-to-peer and other bridging lenders has already risen,” it said.
“The number of borrowers falling behind on loan repayments, albeit in unregulated markets, is steadily climbing.
“Anecdotal evidence indicates that short-term lenders are beefing up collections departments in anticipation of further arrears; it may be that the longer term regulated market should consider its own readiness for rising arrears, particularly as the short-term sector usually leads the residential market where arrears and possessions are concerned,” AMI added.
Robust underwriting and risk
Last week in his regular column, Association of Short Term Lenders (ASTL) CEO Benson Hersch said “there is no place in the bridging market for excessive charges”.
The trade body has also previously warned that with the slowing property market it was taking borrowers longer to sell properties and repay loans, and that brokers need to do their homework on lenders.
In response to the AMI comments, Hersch told Specialist Lending Solutions: “It looks like arrears on short term loans are becoming more of an issue, as we had expected, and the recent demise of Lendy will cause many to speculate whether other lenders will be next.
“This is a timely reminder about the importance of robust underwriting and risk controls.
“Anyone can lend money, the art is being paid back – and so lenders need to make sure they have the appropriate skills and processes in place to ensure they are making the right lending decisions.”
Defaults should be last resort
In a statement, Oblix Capital said it also supported moves to increase transparency, professionalism and the reputation of the industry.
However, it argued that lenders should always prioritise client engagement to find an alternative approach, with default rates only coming into force as a last resort, once all other options have been exhausted.
Oblix Capital sales director intermediary and network Andy Reid said: “As the end of the facility term approaches, we would much rather engage in discussion with the borrower to identify whether repayment of the facility is likely by the due date and, if not, we explore alternative options.
“If, for example, there is a viable, but slightly later exit plan in place, we could extend the existing facility without incurring any default charges.
“Alternatively, we could look to re-structure the loan, perhaps by moving to a different product.”