2014, a big year for regulation, has started a little quieter and cautiously than last, but another lender has now joined the 0.65 bridging rate club.
Many are completing deals that have rolled over from Christmas and, as bridging increasingly grows, lenders are on the recruitment drive.
Christmas seems like an age ago, as does New Year, but every year we're all faced with 'The Sale' sign at shops and online; the bridging rate war is much like this, but more in terms of a special headline promotion.
Remember, that these rates, although viable, for many are very much subject to change!
Imagine, going into a shop, which has a big sale on, and finding a nice jacket to buy. You go to the checkout and are faced with a number of conditions before you can buy it...cue the small print.
If you fail to meet one, then you can’t buy the product at the offered rate. Bridging is very similar to this and typically the 0.65 per cent rate is offered at low LTVs, so it’s useless if you want something over 70 per cent LTV for example.
When shopping around we are all attracted to sales and offers (headline rate), but they may have run out of stock (lenders not able to offer more loans at this rate). Therefore, do you go for the more expensive product (higher rate) which, in turn, sometimes means you receive a better service. Shoppng around is about the whole experience, much like a restaurant. Nice food, reasonably priced, but if the service is slow and your waiter is poor, you will think twice about going there again.
Today’s B&C Poll results show that brokers are wanting higher LTV rates within bridging, so many lenders are now strengthening other areas. It’s not so much about the 0.65 per cent bridging club becoming saturated and lenders fighting it out to offer that headline rate, but more about diversity.
Consistency (certainty of the deal) and transparency were also voted for by brokers. Service is the key to it all.
Don’t get me wrong, lenders are still being forced to become more competitive on rate due to market conditions and funders’ demands on returns. However, brokers and their clients crave certainty of the deal, service and innovation.
If you were faced with knowing that you would get something immediately and pay a little more for it, than wait for a number of weeks or months, would you pay more?
The answer should be yes as the opportunity cost for not doing so could cost the borrower much more in the long run.
2014 will be a year in which we will start seeing the first moves from bridging lenders moving into different product sweet spots and niche areas. Perhaps we’ll see a return at some point of lines of credit or hunting lines...
Peer-to-peer lending is booming and many bridging lenders have latched on to that. Many have done this well and a number have launched their own platforms, which in turn fund deals. It’s a great opportunity for investors at the moment too!
But brokers need to look at the small print and do their research. Look at service levels and speed of turnaround; if you need a bridging loan quickly this is crucial to success. Many will happily pay more for a quick turnaround than be faced with needless negotiations for a few basis points.
It’s all about the perceived risk in the deal and a lender’s cost of funds, as they need to have that capital buffer as protection to the risk of the deal. It’s impossible to envisage how far rates will go, but in theory they still can.
Brokers also need to price for risk for their clients. Ask yourself the following before dealing with bridging: Do I feel confident about dealing with bridging and already know where to go? If not, maybe you need to speak to a packager or distributor. How quickly does the client need a loan, if it’s not for very long, then you may not necessarily put the emphasis on the rate. What’s the service and turnaround time like? Well, if you've read this far... start shopping around and find out!
Bridging amongst the mainstream bridging lenders has reached a plateaux, in terms of the number of top division lenders, in which many more could also eventually offer 0.65 per cent or lower rates.
But technology processes and key appointments will be key this year, and some lenders are about to move into different areas of lending, so watch this space!
It’s not about rate but service, but obviously a cheeky deal here or there is always welcome!
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