Responsible Bridging
of last resort largely to sub-prime customers. “nowadays it is more about
project finance to people and businesses who are prime and often high net worth clients.”
seRving the customeR Christian Faes, managing director at Montello Finance, agrees that the type of lending done by bridgers is shifting. “The fact is the quality and profile
of a bridging loan is quite different to what it was four or five years ago,” he says. Faes adds that generally a
borrower looking for a bridging loan would have had no difficulty with obtaining a mortgage from a traditional lender in the past. But due to the fact that banks are contracting their balance sheets, increased regulation and the issues of the credit crisis still being dealt with, many borrowers are faced with the option of going to a bridging lender or passing up on the opportunity to buy the property. “The general profile of a bridging
loan in the current market - and a bridging loan borrower - means that arguably the borrower is more sophisticated and expects to be borrowing from a professional outfit,” he says. Compliance expert Ray Cohen
of Jackson Cohen says the large number of bridging providers makes it virtually impossible to describe the industry comprehensively. “There are around 100 lenders operating in the short-term market
and so there is a great deal of variety in how firms operate,” he says. “It is fair to say however that the standards have generally improved in the sector, especially amongst the main players.” But with such a large number
of lenders, and the majority not FSA regulated, there are still some practices and operating procedures which need improving. “For instance,” he says. “You
will still see adverts for non-status loans targeting repossession cases – something the regulators are known not to like.” And there are many other
instances of “not liked but not illegal”.
oveRRides Perhaps the most talked about if not the most prevalent is overrides. This is a booster commission paid to brokers and packagers by the lender as a “thank you” for hitting certain target volumes paid in addition to proc fees. Although legal on unregulated
bridging deals the Office of Fair Trading looks down on the practice and the FSA has outlawed it on all regulated lending activity. Lenders must disclose to the client that they pay overrides and point out it may encourage brokers to recommend products that are not necessarily the most appropriate for the customer. Cleary is quite clear about where
he stands on the subject. “The payment of overrides based on volume is outlawed by the FSA for a good reason: it leads to customer
“With such a large number of lenders, and the majority not FSA regulated, there are still some practices and operating procedures which need improving”
8 BRIDgIng InTRODuCER septemBeR 2011
detriment,” he says. “not all lenders are clear about what fees are being charged and what proc fees are being paid and to whom.” Laurence goodman, managing
director of Bridgebank Capital, says in some cases it can be a commercial decision for lenders to make. “I think there’s a grey area on
overrides,” he says. “If a lender chooses to pay certain introducers a higher commission than other ones then you can question if that is regarded as an override or a commercial decision you’ve made.” goodman explains it can come
down to definitions. “An override is very much
an inducement to get volume business,” he says. “But in the residential domain you get ‘platinum’ brokers and who are traditionally given a load of work. They get paid a higher commission than a normal broker and there’s nothing wrong with that.” Kevin Thompson, managing
director of Brilliant Solutions, says regulation has historically chased this type of incentive out of various markets. “I used to be involved in secured
lending where overrides were massive,” he says. “It gradually got banished some time ago so I was quite surprised to see them active in this market.”
upfRont fees Another bugbear of brokers is the charging of upfront fees before agreeing to make the loan. These fees come in various guises either being an application fee, commitment fee, legal fee or valuation fee. There is no legal obligation for
the lender to pay the fee back to the client even if they reject the application. These can range from around £500 to the thousands though the practice is thought to be fading out. “There are fewer lenders who charge upfront fees which does
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40