News Review: Short term finance


The short term finance sector is alive and kicking


by Paul Brett, business development director, Borro.com


it is interesting to see


that the most resilient part of the lending market over the last few years has been bridging finance. the reasons are pretty clear both on the demand and supply sides. on the demand side, short term finance has been a form of liquidity that has found a ready market, particularly as borrowing in general has been squeezed. the shortage of main stream funding has seen many accept a bridging solution and then complete a property transaction conventionally or refinance a property with bridging and then have the breathing


“Up to now the only asset suit- able for lending against has been property. What is so surprising is why it has taken so long for there to be an alterna- tive asset class suitable for secu- rity for a loan”


space to sell or refinance again on a longer term basis. However, up to now,


the only asset suitable for lending against has been property. What is so surprising is why it has taken


Remuneration conundrums


The industry is being led towards a future which will be significantly different from anything we have been used to in the past. One of the most telling conundrums facing brokers will be whether they adopt a fee based remuneration system for most if not all advice, or continue to soldier on with a ‘free’ service paid for out of procuration fees and supplementary income from add on services such as insurance and conveyancing. Simple economic reality suggests that


with falling or non-existent procuration fees becoming a reality, the majority of brokers will have no choice and recent polls suggest that many brokers do already make a charge for their advice and offset that against procuration fees received. Behind this sits the spectre at the feast,


the FSA. One of its more laudable aims is to increase the ‘professionalism’ of the industry, particularly among those actually giving advice. Stopping short of linking fee charging


so long for there to be an alternative asset class suitable as security for a loan? Lateral thinking would suggest that any decent asset, properly valued, should be able to provide sufficient security to raise capital. Yet it has taken a shortage of general liquidity in the marketplace and the restrictions required by a lending industry that has seen property valuations undergo a downward correction, to bring the alternative of borrowing against high end assets to the intermediary market. once we get over the


hackneyed image of a down at heel transaction only used by the desperate or feckless and as a source of borrowing of last resort, the modern day online 21st century facilities on offer these days are in fact no different from bridging.


with improved professional conduct, it clearly feels that a level playing field, unswayed by the consideration of rival providers offering competing rewards, is preferable as a model for unbiased advice. However, as that particular business model


died with the market correction and the demise of subprime, brokers are more likely to be switching to fee based advice as they can no longer make a return relying on a procuration fee approach. The rise and rise of direct deals, blatantly


priced better than those available through a broker, has led the more enterprising to offer a recommendation service based on passing clients directly to lenders where the deal is best and charge a fee for so doing. I would however suggest that many customers are going to baulk at paying for a service that they have always assumed would be paid for by the product provider. There is room for both models to work. The


final arbiter of whether they are receiving value will be the customer.


CREDIT CARD RELIANCE According to the most recent Post Office Consumer Credit Report, more than 11.5 million people spent January relying on credit cards to fund their day-to-day living costs. A report by the charity Shelter has found that more and more people are paying rent and mortgages on credit cards. Shelter stated that this was the “worst possible course of action” for householders. Based on a survey of over 2,000 people, 6% of them said that they had withdrawn money on a credit card to make housing payments and Shelter states this would roughly equate to two million people. We all know that the general economy is in a poor state but with unemployment still at acceptable levels, bearing in mind the economy, the wonder is that so many people are so indebted as to be in a position to need to resort to credit cards for the day to day living and housing payments. To compound the doom and gloom, another survey states that up to one in eight credit card holders has missed a payment in the last twelve months. What is truly frightening is that if we factor in the rise in interest rates that is inevitably going to come, the pain of overconsumption is really going to be felt very widely when those rate rises feed through to mortgage, loan and credit card payments.


mortgage introducer MARCH 2011 19


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