There is much talk of specialist lending within the marketplace at present and it’s always interested me how many sectors this appears to cover – arguable you could move away from prime/residential lending and make a case for all other types of lending fitting the specialist niche. So, for instance, we could potentially say that high LTV lending is now specialist, and that’s without looking at buy-to-let, lending to the self-employed, equity release, second-charge mortgages, not forgetting bridging loans and development finance.
In essence, the market appears to be moving into a mainstream/specialist split in which years ago, those sectors that might make up the specialist stream would have certainly been considered mainstream. The reasons for this are many and varied but there’s no doubting that as mainstream, particularly low LTV/low-risk business has become increasingly competitive, lenders have looked to other sectors in order to meet their targets and (rather importantly) secure their margin.
Thus we’ve had the deep concentration on all things buy-to-let but give the regulatory and political influence being brought to bear on this particular sector, we’re starting to see lenders look elsewhere in order to fill their lending boots. The ‘new’ buy-to-let now appears to be ‘lending to the under-served’ which again could justifiably cover off numerous product areas; indeed we’re even seeing a very slow move back to mortgages for the credit impaired, although I suspect the regulator is not too enamoured of this making a full-scale return.
The point is that specialist lending sectors are called this because they require, on the part of the lender, specialist knowledge/underwriting/funding, while on the part of the broker, they require a deep-seated knowledge of lenders’ products/criteria/appetite/activity levels/flexibility. For brokers who don’t often deal with such clients it is a lot to keep on top of, and requires an experience and understanding they may not wish to secure given the fact that many of their clients simply don’t need this type of finance.
We’ve certainly found this with brokers who see clients requiring finance in our specialist areas – bridging and development finance. While they might wish to take their client by the hand and lead them through the finance available, they are not really in a position to do so. Now, at this point, you might think they’d seek out a specialist business like ours and let us carry out the work, find the finance, complete the case and (I might add) pay them exactly the same commission as they would have received if they’d gone direct. And some do, but some do not.
It’s in these circumstances that problems can arise and, when asked to pick up the pieces on a deal, we find the same mistakes having been made. Common ones include a propensity to ‘waffle’ around the deal, supplying information that isn’t required or relevant and wondering why the lender isn’t taking this into account. Other times, we will find the broker straying into areas which are unnecessary or provide over-complication, rather than sticking to the facts and the client’s requirements. It’s not meant in any harmful way but it can cause damage and will often result in a lender turning away a case which, under other circumstances and fronted by a specialist, would have got over the line.
In this market you have to know exactly what it takes to get the deal agreed – and if you don’t then you’re asking for trouble by continuing to work the case yourself. Far better, when it comes to specialist finance to use the specialists themselves – we often tell our brokers that if we can’t do it, then no-one can, and therefore it makes sense to utilise us first rather than spending far greater time and effort either getting to the same conclusion far later down the line, or finding that the relationships are simply not there to get the same result. It’s specialist for a reason, and brokers who can acknowledge this and utilise the services on offer, are far more likely to secure the deal and retain the client.
Jonathan Caplan is director of First 4 Bridging