News Review: Short Term Finance


There’s the good news and then there’s the bad news


by Paul Brett, business development director, borro


good news comes in many shapes and sizes and it was great to read that colin Sanders has been appointed to head up omni, one of the newer bridging lenders. For those of you who


remember colin in his previous roles, the arrival of a true industry heavyweight to head up a lender in our particular industry segment is a great positive for the industry and also will help instil more confidence in the intermediary community of course, the industry is


bigger than any personality, but as the lending industry as a whole is still in the doldrums, it is significant that colin has chosen to put his marker down in the short- term lending market, rather than with a bigger lender in the wider market. With the track record he demonstrated at ge and at money Partners in developing businesses, clearly he has seen the possibilities that our market has and recognises the opportunity to build omni. in a short interview he


was asked whether he was considering applying for omni to become regulated but commented that he believed there was more scope in the non-regulated sector and there were no plans for regulated status. given the concerns over


potential eu regulatory proposals which could affect the viability of a proportion


of the short-term lending market, there is optimism that the eu proposals will either be watered down, or if implemented will not have such a direct effect on those lenders whose business is predominantly in the unregulated area. We are all keen to see the


development of short-term lending into a significant part of the market and with colin’s appointment, this is a notable milestone.


Headline rates a little bit of a déjà vu moment with the growing trend among bridging lenders to push headline rates. Where have we seen this before? With new lenders arriving


almost daily and the short- term bridging market hotting up, marketing departments seem to be turning to that old standby when competition is getting stiff, namely the use of rate as a weapon to draw in the punters. it was not long ago, at the


height of the feeding frenzy around sub-prime mortgages that new lenders looking to grab a slice of the market, felt they only had two weapons with which to make a name -rate and risk. the rate card was played very strongly. in fact, we are also seeing a similar pricing bubble emerging in the mainstream mortgage market with high street lenders vying with each other for lowest rates – a sure sign there is too much competition or too little demand. in the bridging market, i suspect it is more to do with the former. the danger in this strategy is that although it generates


interest from the market, ultimately it forces others to follow suit and so starts a spiral which, when the advantage is exhausted, leaves only the slippery slope of more elastic underwriting and high and higher LtVs to maintain competitive advantage. While at first


“As many brokers have realised those very attractive rates are just window dress- ing and will not fit the majority of cases”


glance the use of rate looks like the definitive example of the free market at work with the customer benefiting from the competition, headline rates are the first step towards a more rate driven agenda. as it stands, as many brokers have already realised, those very attractive rates are just window dressing and will not fit the majority of cases. With the oFt already


making noises about what constitutes misleading advertising, i hope the market takes the hint.


Short term one of the most basic commandments of short term lending is that the funding is exactly what it says on the tin – ie short term. For lenders


to allow clients to carry loans forward, although very lucrative (provided the client is still paying), it can cause funding issues, particularly for smaller players. However, it also points towards customers being either extremely apathetic about the cost or having a serious problem with their exit strategy. From what research i have


seen, it seems that most of the headline lenders have a pretty healthy redemption record at the moment but it remains to be seen whether market conditions and the kind of competition i talked about earlier start to alter the complexion of the market. Less sympathetic commentators have tried to maintain that short-term lending is where brokers are going when their clients need funding which would be turned down elsewhere. While that is clearly a


nonsense in the main, the fact remains that should competition in the bridging market hot up even further, not only could we see more aggressive use of rates but also a more marketing driven approach to risk. the danger is that lenders take on more riskier propositions which leave them with, at best, loans which rollover and at worst with delinquent accounts where the underlying asset is, on re-inspection, not as marketable than it was thought at application. there is a balancing act that


needs to take place between lenders and introducers to limit the pressure on lenders to start pushing the envelope of what constitutes acceptable risk. it is a dangerous game.


mortgage introducer AUGUST 2011 23


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