Positive Lending recently launched with Precise Mortgages an exclusive rate of 0.59 per cent a month. Yes, it is available only to 40 per cent loan-to-value but just over 40 per cent of our business with Precise is done at this level or lower.
Despite falling interest rates in virtually all property classes, charge types and LTVs, the majority of brokers are not acutely aware of recent improvements.
In fact, having spoken to a number of intermediaries at conferences, seminars and broker meetings, they still believe most bridging cases are priced north of 1.25 per cent a month. I genuinely cannot remember the last case we completed above 1.25 per cent a month. This is 2009 pricing.
It is fairly common knowledge that Shawbrook Bank is preparing to launch a regulated bridging proposition in early 2015. As a bank, Shawbrook benefits from a relatively low cost of funds compared with most in this sector and, if its current unregulated pricing matrix is a sign of things to come, I expect our 0.59 per cent rate to be challenged and the LTV to be increased above 40 per cent. In fact, I would not be surprised if Shawbrook sets a new benchmark for pricing in bridging at most LTV brackets. But for how long?
Precise Mortgages has established a reputation for market-leading pricing in bridging and I doubt it will want to lose this moniker. We have an excellent working relationship with Precise and value its packager-centric model. The lender enables us to offer genuine value to the intermediary market. It remains to be seen whether Precise will wish to cut pricing or increase risk to compete.
The best rate is not, however, always best for customer outcomes. A good broker should be aware of distinct underwriting nuances for each lender when making a recommendation. A client seeking bridging with no declaration of income or bank statements will not be suitable for all and this may have an impact on eligibility and pricing.
A prime client prepared to provide full disclosure may not have an exit strategy accepted by prime lenders. The variables in bridging, especially in prime lending, are not as simple as LTV and exit strategy. Income, LTV, exit strategy, personal/corporate credit profile, loan size, regulatory status, property type and property condition – to name but a few – all contribute to a risk profile that determines eligibility. Approaching lenders without an understanding of the above could lead to multiple rejections and lost time for your client.
Our philosophy with bridging is that rate cards should be used as a guide only. I have made this very clear to lenders on our panel so I do not mind sharing this view in the open. We believe our responsibility is to negotiate the very best terms and maximise likelihood of completion.
We sit in a luxurious position of having completed a vast amount of cases and therefore have an intimate insight of pricing across a wide range of scenarios. If a lender issues terms, we know if they represent good, bad or great pricing and the likelihood of success attributed to each. Utilising a bridging specialist should allow intermediaries access to this type of feedback, which is invaluable in promoting excellent conversion.
Due to the size of this market, bridging lenders still have an element of flexibility. Margins compared with term products are much better and achieved without a disproportionate exposure to risk. Essentially, we are experiencing a natural rebalancing of pricing for this very reason.
Once you establish that a short-term loan is most appropriate for your client, you have a valuable commodity. I would use this to negotiate the best deal possible.