As a result, brokers are being urged to ensure they are recommending reputable lenders to their clients and are fully aware of the potential costs of going into default on a loan.
Octane Capital CEO Jonathan Samuels (pictured) told The Specialist Lending Event 2020 that while he believed certainty of funding was the most important aspect for an adviser to consider, lender reputation including their approach to defaults was vital.
Samuels and Octane managing director Mark Posniak have been vocal about default practices in bridging lending over the last year and Samuels highlighted some of his concerns, citing that one lender charges five per cent the first day over term.
“There’s often an incentive for the borrower to have a shorter term because often interest is deducted, so the net loan is higher and they get more money if the term is shorter, but it carries a huge amount of risk,” he said.
“So I think it’s the lender’s responsibility to be realistic about what the term should be. And you don’t want to be with a lender who is incentivised when the loan goes into default.”
Lenders should guide the term
OneSavings Bank sales director Adrian Moloney agreed: “It comes down to lenders recognising the correct term for a bridge,” he said.
“Someone might apply for six months but you can clearly see it’s going to take longer, if you’ve got the expertise in the market, it’s potentially unlikely to sell the property in that term.
“So you need the expertise and to guide what the correct term might be.”
Moloney also said the responsible lenders would be proactive in communicating with borrowers during the term of the loan.
Samuels concluded: “There’s a huge disparity and you want to make sure that who you are putting the business to you don’t get into that situation.
“And if your client is in that situation, who are they going to look to? It’s probably the person who’s introduced them to that lender.
“It is something that’s often overlooked and I would encourage you to pay close attention to the detail when looking after your client.”