Throwing stones is always dangerous, particularly if you’re a lender and you’re throwing them at brokers. But I am going to throw this stone.
I have heard a worrying number of people suggest recently that there is a small minority of brokers out there who will reject using a bridging lender based on nothing more than proc. fee. It is true that most bridging finance is pretty standardised: you check the security, you check the term, you check the exit. The main things that differentiate bridging lenders are service, speed and cost.
Traditionally bridging rates were pretty standard across the market place at around 1.5% a month. The past couple of years have brought several new lenders into the space and it’s shaken things up: rates have come down on average and there is a lot more variety in the product types, structures and flexibility than there used to be. These developments are good for the customer for the most part. They can do more interesting developments, at a lower cost and drive up their profits.
Except, and this is why I am throwing the stone, it appears that the customer isn’t necessarily paying less for these “cheaper” loans. Instead, rates are coming down, fees are going up and the broker is taking a much larger slice of the pie. Now, don’t get me wrong, I am a huge champion of brokers. They are our lifeblood in bridging and there are many, many people in this market who do business with integrity, professionalism and, quite rightly, are driven by the often substantial financial rewards on offer.
I am a businessman myself – making money out of our commercial endeavours is the point. But I also believe that integrity and serving the customer well is fundamental. And I worry that there are a tiny minority of intermediaries who are maybe running the risk of forgetting that. I’m talking running a deal past several lenders that each come back with different rates, terms and costs to the borrower but one is dangling a whopping great 2% proc. fee in front of the broker’s nose.
Which do you pick?
It’s hard to turn down that kind of money, especially if there are only incremental differences in the rate and if the borrower doesn’t break the terms, well, then there’s hardly a difference at all. Except there is a big difference. This is personal bias at its very worst. As I understand it, there have even been instances where a broker has refused to do business with a lender because the proc. fee on offer was just not high enough.
This kind of mentality has a serious flaw, particularly in the world we operate in today. It is definitely not putting the customer at the heart of the transaction. It is not treating customers fairly. It is the opposite. And the fact is, like it or not, regulated or not, the Financial Conduct Authority has its beady eye on the whole darn lot of us in bridging. It has taken over supervising consumer credit and it is spending the next 18 months making very sure it’s got a tight grip on how unregulated lending in this sector affects and interacts with regulated consumer lending.
It is folly to think that, even where deals fall outside of the regulated world, choosing a lender based on the reward earned by the broker won’t result in the regulator coming down hard. It brings to mind another market that started to malfunction not so long ago. In 2006 and 2007 brokers were making hay, recommending prime borrowers take sub-prime loans because the rates were just as low, if not lower, all the while they were taking home twice as much bacon as the brokers recommending lower proc. fee prime deals.
It is naïve to think this kind of behaviour will be left unchecked. There is so much that the bridging market is getting right – let this not become the problem that undermines the professionalism we have built for our industry and competitive spirit that is so good for the customer.
Matthew Anderson is a director of Fincorp
