Consequently, we have reached the point where a slowing property market, combined with intense competition between established specialist lenders to maintain market share and newer entrants to gain some has inevitably seen some lenders, both old and new, pushing both rates and loan-to-values to unsustainable levels in pursuit of new business.
These same lenders have often paid inadequate attention to their clients' exit strategies.
The assumption that rising property prices would always ensure an exit by refinance have proved to be deeply flawed and default rates for these lenders have spiralled.
Against this backdrop of rising defaults and growing losses, some established lenders have lost their funding and have begun to exit the market.
Meanwhile, some newer lenders have based their underwriting strategies on algorithms and automated procedures.
This one-size-fits-all mentality simply does not work in a sector where deals are often extremely complex, requiring the sort of ‘outside of the box’ thinking and tailored solutions that only highly experienced underwriters can provide.
Rigid product offerings do not work well in the bridging space.
Holistic approach
Finally, compounding the above, due to the rapid growth of the sector, it is now often the case that relatively junior underwriters and staff are being offered positions and levels of responsibility for which they are too inexperienced and ill-equipped to cope.
Immediate contact with senior personnel is often the key to a successful outcome, but this can be impossible with some newer lenders, who just do not have the in-depth knowledge within their teams.
Now, more than ever, advisers need to take a more holistic approach when determining the lenders they deal with.
A simplistic focus on lower rates, coming as they often do in rigid, less flexible product offerings, can be a mistake.
Frankly, there is much more to making a good choice than price, particularly when the average duration of bridging loans is counted in months rather than years.
Rate and LTV should always be balanced against a multitude of other factors, including an ability to offer both conventional and unconventional solutions, access to senior decision-makers from the start of the application process until the day the loan completes, autonomy to make decisions in-house, certainty of funding and a consistent and, above all, decisive service.
Fortunately, there are many lenders with highly experienced teams and strong and diverse funding lines which were formed and have been forged in the last recession.
It is these lenders that will underpin the specialist market in 2019 and that stand ready to meet the funding needs of borrowers, be they opportunistic investors in a buyers' market or the entrepreneurial SMEs that are the backbone of the economy.
