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Respons ble Bridging


run the risk of giving the sector a poor reputation,” says united Trust Bank’s Margolis.


fee hiking This is similar to the upfront fee ploy but where the lender and valuer or solicitor gets a kick back as well. Extortionate legal or valuation fees are charged by the lender which then splits that with their legal or surveyor partners. Often the loan is conditional on using a “preferred” legal or valuer partner. Various brokers refer to this practice going on but proving it is near impossible.


default inteRest Rates Again, this practice is legal and disclosed in lenders’ terms and conditions. Most lenders charge monthly rates of between 0.9% and 1.5% on an agreed bridging loan but a few will hike that monthly pay rate to 5% if the agreed term is exceeded. Brokers say it’s unfair to


customers and can eat into their equity share at a rate of knots. The Association of Short Term Lenders says it’s a commercial decision and as long as all charges are disclosed to the borrower upfront there is no problem with the practice. In the same area, brokers often


complain that one-off extension fees of up to 5% of the loan amount to extend the bridge beyond the initial term, often paid in addition to a jumped up overrun rate, are similarly unfair. However, these too are currently acceptable on unregulated business.


fixed teRms Some bridging lenders will insist that clients agree a fixed term at the start of the period, which is arguably an understandable commercial decision. Brokers will often advise clients to take out the bridge for longer than they think they’ll require it to guard against having to pay extension fees and/or default interest rates. However if the client repays


“The client must have the means to accommodate unforeseen delays and also be very clear on the full terms and conditions associated with the facility”


earlier than the fixed term agreed he is still liable to pay the full term of the loan plus early repayment charges, which can be high but are permissible. Stephen Johnson, new business


director at Whiteaway Laidlaw Bank, says transparency is key for him but is concerned increasing competition could mean in the search for originations there is a risk that sharper lending practices surface. “Being honest bridging has


always been equity lending in its truest form,” he says. “This is not acceptable in the modern mortgage market, and therefore a responsible bridge is one where the client has a very clear repayment strategy that is truly viable and achievable in the very short term.” He also adds that the client must


have the means to accommodate unforeseen delays and also be very clear on the full terms and conditions associated with the facility. “Some bridges have step up


in rates and fees when facilities expire; this accelerates equity burn in the property, further reducing the opportunity to refinance in the cautious term market,” he says. “I have heard of some facilities purposely written over shorter time frames in anticipation of the opportunity to step up fees and charges and increase overall profitability.”


Bait and switch Another frustration for brokers and borrowers is when the lender issues


10 BRIDgIng InTRODuCER septemBeR 2011


terms of a deal, fees are paid and then the terms (usually loan to value or rates) are changed. Omni’s Colin Sanders says


anecdotally this does go on: “Bait and switch involves ‘hooking’ customers by quoting highly competitive terms only to switch them to less attractive, but more lucrative, deals at a later date.” While Montello’s Christian Faes


says while his lender categorically does not do this he has heard of it. “We do hear stories from brokers


quite regularly that some bridging lenders will issue terms on a deal and then change the terms at the last minute,” he says. “This is obviously a factor of


the market becoming much more competitive. The issue is that by the time that the bridging lender changes their terms, the borrower has already paid for the valuation and probably the legals and is committed to the deal. “Time is of the essence and if the


lender changes the terms at that late stage they are likely to just proceed in any event as they have no other option.”


cloak and daggeR It’s perfectly legal for a packager to white label a lender’s products however that too can lead to customer detriment. For example Lender A declines


a client’s application on criteria. Client goes back to the drawing board and discovers he can apply to Lender B. He pays an upfront fee and is then rejected on criteria but loses the fee. unbeknownst 


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