Bridging
Brokers need to know stability of each bridging lenders’ funding lines – SLS In Focus
Specialist Lending Solutions “In Focus” series deep dives into different areas of the specialist lending market. In this special edition, we are discussing funding in the bridging market with Gareth Lewis, commercial director at MT Finance, Steve Smith, sales director at Roma Finance and Glenhawk’s director of sales Jamie Pritchard.
All the panellists said it was vital that brokers consider a lender’s funding in their checklists and that diversification of funding was crucial, especially during volatile periods.
Lewis said: “If you are a one trick pony and have only one source of funding you run the risk that as soon as that appetite dries up or they feel it is too risky to be in that market or couldn’t give them the return they are looking for, they can pull your funding very quickly.”
Smith agreed and added “It’s massively important in times like this, and we have seen this previously in other downturns, if you have one funding line or very restricted funding lines it can be pulled and then you can’t lend. So, as a funder if you can’t fund you become pointless.”
Pritchard continued that he would not want to be a “one funding lender who is forward flowing it”.
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“Forward flow does work if you have multiple pots and diversity. But their appetite has changed in a few weeks, so that diversity really works,” he added.
Some methods of funding include deposits-based lenders and challenger banks that lend using savings, forward-flow arrangements with family money or funds and warehouse funding.
Pritchard said that Glenhawk had warehouse or institutional funding from JP Morgan and Natwest Money Markets, and said that this allowed the firm to write business in-house and gave stability.
Smith said that at Roma Finance it had nine different funding lines, which also gave it increased stability and allowed it to offer a wider range of products.
Lenders may ‘fall by the roadside’
Smith said that some lenders may “fall by the roadside” in the coming months, and unfortunately, it was a “fact of life when you have any form of downturn”.
Lewis added that “there was no barrier for entry” in the bridging market as pricing was low.
“There were a lot of people that could enter the space with a small funding line…and they didn’t truly understand the marketplace. They have now gone into that hole of then pulling products when the market becomes more dysfunctional.”
He said that if brokers did not understand what was going on in the background or whether lenders had the ability to fund a deal then that could create problems.
“You can kick the can down the road for a long period of time and they might be waiting for a redemption or waiting for funding line to be agreed, but they are still processing that loan application. That’s where the issues will come.”
Smith said it was important for brokers to have a relationship with a funder, the same as they do with a customer, and that would be helpful in more volatile periods.
He added: “For a good broker, and there are many out there, to understand how we are funded even on a general level, so they are comfortable that we have the money to complete deals over 12 to 15 months or two years, it’s really important to have that clarity that it is done and fine and it is safe.
Pritchard added that knowledge around funding can also help with repeat business due to good customer experience.
All participants said that their respective lenders were still “massively open for business”.
Watch the full video [10:58] hosted by Anna Sagar, assistant editor for Specialist Lending Solutions, featuring Gareth Lewis, commercial director at MT Finance, Steve Smith, sales director at Roma Finance and Glenhawk’s director of sales Jamie Pritchard.
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