The results found that 40% of respondents believed an ESIS would make the costs of a bridging loan more transparent, while 40% said it would make no difference. The remaining 20% voted that an ESIS would give more credibility to the lender.
Liz Syms, owner at Connect Mortgages and one of the first to raise the issue at the Specialist Lending Senate said that a comment quotation document would help in ensuring a borrower knew exactly what they were signing up for.
“It will also help advisers understand hidden costs, for example where interest is charged on payments rolled into the loan and where there are exit fees”, she said.
Steve Barber, managing director and founder of Bridging Finance Solutions, said that his company has issued KFI (Key Facts Illustration) documents for both regulated and non-regulated loans for a decade.
“That means that brokers can make informed, transparent choices on behalf of their clients on the overall cost of a transaction, rather than just the headline rates with fee structures, loan terms, interest charging mechanisms, etc, in the small print.
“Bridging is far more than just interest rates but looking at the overall cost of the transaction is key in determining the benefit and cost to brokers’ clients. It is sometimes difficult to ensure that you are comparing ‘apples with apples’ with different loan structures and that the overall cost of funds is being analysed”, he said.
However, Barber said that BFS fully advocates transparency and feels that KFIs and the ESIS would provide brokers with all the facts and “no surprises”.
Chris Dailly, chief executive of Jumbo Bridging, said he doesn’t believe an ESIS would make a difference to his business operationally as he issues an ‘indicative term sheet’ indicating all of the costs involved.
“So in my humble opinion I don’t believe an ESIS type document would be necessary as the Indicative Term Sheet already deals with the cost side of things.”, he said.