Comment: Competition comes with a cost

While greater variety should be welcomed, new entrants to the bridging market must not cut corners in order to make up ground.

With the help of the Association of Short Term Lenders, the bridging industry has become a much more regulated space, with lending a lot more prudent than in the past. This more sensible approach has resulted in fewer defaults and, therefore, lower rates.

And, as bridging has started to pull itself into the mainstream, borrowers are coming to lenders for an increasingly wide variety of reasons – from a standard residential bridge and refurbishments, to commercial purchases and auction.

As more and more lenders begin to realise they want a piece of the bridging pie, there are new players entering the market all the time. But is this good or bad for it as a whole? Well, that depends.

I have always believed that competition is healthy. It forces lenders to look at their rates and processes to ensure they are offering the best services they can.

So I do think there is plenty of room for more bridging lenders, especially as the need for bridging finance continues to grow.

However, if it goes too far, it can have the opposite effect, and encourage bad practice.

For example, many of the new entrants are realising that, once a broker has found a good bridging lender, they will not move unless they are given a good reason to. So these new players cannot just come in and offer more of the same.

In order to disrupt these long-standing relationships, they need to offer something different. And more often than not, that something different is market-leading rates and higher loan-to-values.

The trouble is, in order to be able to undercut their competition, they are starting to cut corners, including not doing proper due diligence.

We all know how that pans out. These lenders are approving bridging loans at high LTVs to borrowers who end up defaulting. This increase in defaults pushes rates up as lenders look for ways to pay for these properties. As this happens more and more, not only does it tarnish the reputation of those particular lenders – many of whom come out of the market altogether – but it makes the whole industry look bad.

So much has been done over the past few years to improve the bridging and short-term lending market, and we cannot afford to have new entrants coming in that do not work to the same standards.

Imprudent lending, where you have lenders prepared to go too far outside of the standards we have worked hard to set, is bad for everybody.

I am more than happy to see competition, but it has to come from bona fide lenders who are prepared to do the proper due diligence and calculate the risk properly. Bridging might offer short-term loans but it is not a short-term industry. The most successful bridging lenders are in it for the long term. They are building up a business and a brand that can be trusted.

We have been in the bridging industry for seven years now and have seen many that came in at the same time leave.

Any new entrants coming into bridging need to consider every aspect of risk, process, customer service and pricing to ensure their proposition actually adds value.

Brokers and intermediaries have a huge amount of choice these days and to really win them over, you have to offer more than a good rate or a high LTV.

Jonathan Sealey is chief executive of Hope Capital


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