News Review: Short Term Finance


Brothers in arms is a good sign for market


by Paul Brett, business


development director, borro.com


We exhibited at a bridging event in central London along with a fair cross section of the major bridging companies at the beginning of may and while there is healthy competition for intermediary business, i was pleased to see that competition has not created division and there was plenty of good dialogue and banter back and forth between the various stands. i know that this kind of camaraderie is not


exclusively the territory of the short-term lending market, but there is no doubt that there is a great deal of cross pollination in terms of thoughts on the market, ideas on service, and product development. What is particularly heartening is the support for the arrival of new lenders in the market from other players. a universal recognition perhaps that the arrival of new players while increasing the competition also stimulates the market and as i have said in previous columns, there is no shortage of investors looking to exploit the opportunities they see in the short-term lending market.


Valuation chickens


home to roost We have already seen the latest ripples reflect- ing the impact of the downturn in the instances of fraud reported by lenders, where the legal process had been compromised. Now we are seeing lenders rightly querying the valuations put on properties which subsequently proved to be far too optimistic in the wake of a later valuation.


Clearly valuations can only be considered to be a snapshot reflecting the confidence in the market at the time. Even with an eye to future extenuating circumstances such as future sale- ability, it is difficult for even the best of valuers to anticipate the kind of economic seismic shifts we have lived through.


However lenders have every right to expect valuations to be based on a sober reflection of the many factors involved rather than the hype. The news that Cheval is considering legal action against some valuers is particularly worrying when the average loan lasts for less than 12 months and rather gives the lie to the argument that property values can shift so much in a short time.


24 mortgage introducer JUNE 2011


“Support for the arrival of new lenders in the market is particularly heartening”


instinctively we all recognise just how close the industry, let alone the whole economy, came to obliteration. as a result, any positive move is seen as affirming that recovery is here and every new lender, new product launch, change of regulatory status is greeted as a small victory for everyone.


So we come back to the dangers around what looks like sub-standard valuation. Of course employing one’s own valuers is hardly cost-efficient given the size of the country and the need for fast turnover, but lenders might have to reconsider the risk / reward equation if they cannot trust the outsourced sources they employ at present. At borro we do not secure our loans against


property and therefore our situation is differ- ent, but we also need to ensure the accuracy of valuations of high net worth personal assets such as jewellery, fine art, antiques and luxury cars for exactly the same reasons. Our business model dictated that we employ directly the best valuers, many of whom learnt their trade at the finest auction houses in the world. Without this kind of investment in the right talent, our busi- ness would have a structural weakness which would not be acceptable to our investors and therefore our long term success. While there is a difference in that the assets we value come to us for valuation in most cases rather than having to go out, all lenders regard- less of the security they are valuing, need to decide whether the risk of outsourcing valuation work is worth the cyclical issue of overvaluation when the market contracts.


NEVER HAD IT SO GOOD Looking at one of the small business websites it was good to see that short-term asset funding was one of the top ten ways to finance a business. It is interesting to think that people need to be reminded that apart from property, there are opportunities to raise cash on personal assets. Since the war and relative to all previous generations, more of the population live in a state of relative luxury surrounded by personal possessions than even a generation ago would have seemed attainable. It is easy to forget that what we buy continues to have a monetary value. Yet when many households face chal- lenging times to make ends meet and pay unexpected bills and cash calls for business or emergencies, our instinct is to look to borrow against property, or to the credit card or loan from the bank. But the days of easy credit have gone and gradually the penny is beginning to drop that clients can look to their own resources to make use of assets on which money can be advanced. A cross section of the lend- ing we are doing covers any- thing from the need to finance stock to an unexpectedly large tax call. Alternatively it could be to complete a deal where the first lender will not advance more because the maximum LTV has been reached and the logical way to proceed is to look at the client’s personal assets to find something on which money can be advanced.


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