Round-table
If this kind of thing is still going on, how as an industry do we pull it out of the dark corners?
GL: if we were to all sit back in the cold light of day and think about regulation and whether it would be a bad thing or not, i don’t think it is a bad thing. everyone in this room does the same due diligence, the same underwriting process, they are confident in how they underwrite a transaction to make sure it is done in the right way. So in theory the FSA should be more worried about perhaps maybe mainstream mortgage lenders underwriting to transaction. there is more common sense in a bridging underwriting world than there is in a mainstream world. CG: You’re right, i’ve worked for mainstream, sub-prime and short- term lenders and the amount of work, effort and pure due diligence that goes on within bridging; i think you’re right that there are other areas which should cause bigger concerns to the FSA before they should cast their shadow on to bridging. SN: the problem is though, how do you regulate a commercial bargain? You can regulate the sides of it, parts of it. if someone’s converting a house to an office building or flats, where do you regulate that? MS: You touched on bridging and secured loans and the impact of interest-only, it should be understood that the secured loan product is a very different product from a bridging facility. i strongly believe secured loans have a big benefit to this market and should
be used more by advisers. clients are going to be stuck on interest- only and have credit card and bank commitments that are completely unaffordable whereas a secured loan can be structured over a 15 to 20 year term that could make clients big savings. GB: it’s all pertinent to the individual circumstances of the customer and what their aims are and it comes down to affordability, the risk appetite of the lender and will it meet the customer’s needs? Sometimes a bridge is pertinent, others a secured loan and other times a mortgage.
How would you say that underwriting has changed over the past five years?
MS: it’s a credit to the lenders that we’ve dealt with in how their models have adjusted. they’ve moved from being a bridging lender of last resort to dealing with high net worth clients and individuals. the funds are available. GL: Markets outside of our control dictated how a lender had to start looking at underwriting a transaction. When the sales market dwindled, property transactions were few and far between when the remortgage market wasn’t there to back up the repayment of a loan, you had to look at a transaction in a different light and that meant you had to do more stress testing than you had to do in the past. When i first entered the bridging market you were looking at transactions without that stringent view because you knew there was a way that loan was going to be repaid. there were mortgages being spat out left right
and centre and being sold in the next day. You never had to worry about how your loan was going to be repaid. GB: When you look at the basic fundamentals of underwriting they were probably the same five to 10 years ago. there were so many different exit routes, you had so many different options a customer had to work with. now it’s a different world where there’s fewer people to take on to a mortgage, the high street has tightened up and even the specialist lenders have a restricted pot of money. the affordability and exit is still important just as before but you have to nail down the exit better now.
Has that impacted on service or ability of lenders to deliver?
MF: As the lending criteria have evolved, borrowers’ perspectives have evolved as well. CG: it’s about educating brokers
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