News & Views

Time to stop confusing the customer

By Matthew Anderson, director, Fincorp

I was flicking through my latest copy of one of the market’s trade magazines recently and the number and tone of ads has got me thinking.

At Fincorp, we have a mantra. It’s to be “clear and simple” in everything we do. We’re not trying to hoodwink clients or brokers into using us, thinking they’ll get one thing and then springing an extra fee on here, there and everywhere. But the thing that struck me about some of the ads we now see floating around the industry, is that far from trying to be up front, they use language that is deliberately designed to get people to feel they’re getting a good deal.

But feeling and getting are two different things.

“Rates from...” is not the same as “this is what the loan will cost, come hell or high water”.

My fear is that brokers can be taken in by this type of language, especially when presenting clients with a choice between two rates – one that, on the face of it, looks cheaper than the other. The debate between low rates plus high fees versus a higher rate and no fees has been raging in both bridging and also the mainstream mortgage market for years.

It’s impossible to read an article in the national newspapers’ money sections about getting a mortgage, first-time buying or whether it’s time to re-mortgage without reading a comment from a mortgage adviser warning that high fees, whether or not they’re rolled up into the loan, make a significant difference to the cost of the loan. APRs were brought in to try to provide a guide to enable clients and brokers to compare true cost. But the reality is that few borrowers look at or understand the implications of APR on what they’re paying.

In bridging, where the term of loans is often (and certainly should be) less than 12 months, the APR figure becomes even less meaningful. But in pounds and pence fees make a significant difference.

Despite a huge drive by the Association of Short Term Lenders, the Association of Bridging Professionals and many individuals in the bridging industry towards professional standards, I am disappointed to see that there is still so much confusion from clients about cost.

The bald fact is bridging costs a certain amount to fund and lenders, as businesses, have to make money for their shareholders and investors somehow. The trend, increasingly, seems to be by cutting interest rates in favour of charging high fees. There are various ways that lenders are doing this and often it’s skimmed over at the outset of the loan by clients, only to come back to bite them if things don’t go according to plan.

And, frankly, the nature of building, developing or refurbishing property is that there can be delays.

So-called “extension fees” are just a higher rate of interest dressed up to look like something else. But the number of clients we see who use us because in the past they’ve been stung by other lenders using this tactic is pretty shocking. There are lenders out there charging up to an extra 2% per month over the full term of the loan, backdated, if a borrower goes over the initial term by just a day. Rates from 0.8% are suddenly complete fantasy if you consider how often the client actually ends up paying that rate.

That’s one scenario, but add into the mix that some lenders are charging exit fees of a similar order if the loan is repaid early and you see that borrowers are being hemmed in on both sides. Arrangement fees are another culprit and are often neglected as contributing to cost by clients. But a 1% arrangement fee on a £500,000 loan is £5,000. If the lender is charging 0.8% a month on the principal plus the fee, it adds up to in excess of £5,000 extra payable to the lender.

That’s £5,000 less profit for clients. 

I have no problem with lenders making money – we are businesses after all. But I think it’s possible, and more to the point, I think it’s incumbent upon us to act transparently in the process. It’s not hard to be honest about charging. There is a cultural sea-change going on in the way the public views financial services and its history of “hiding” charges in the small print. Investments, pensions, financial advisers, platforms and fund managers are all being or have been regulated to prevent misleading and opaque charging from causing consumer detriment.

In my book, all bridging lenders should be acting with the same kind of transparency.

Source: Fincorp



Geoff Philpot: Bridging that does what it says on the tin

Geoff Philpot, director of national mortgage broker DMI Finance, headquartered in Chippenham, is always thinking about what’s best for his client. For him, that means dealing with a lender that “does what it says on the tin”.

Q: How long have you been doing bridging as a broker?

GP: I’ve been a mortgage broker for fifteen years. DMI Finance is a whole of market mortgage broker so we are fully regulated by the Financial Conduct Authority. Mostly, however, we focus on specialist property finance, commercial and bridging deals, auction finance and buy-to-let with around 5-10% of our business in the mainstream residential mortgage market.

Q: When did you start working with Fincorp?

GP: We only came across Fincorp a few years ago. The market was going through quite a lot of changes and some of the lenders we had dealt with for a long time were refocusing their businesses and changing the sorts of deals they wanted to do. We had known of Fincorp for a while and decided to try them for a client who had been let down by another lender. Dealing with them was very refreshing I have to say – their method of operation is simple and straight forward.

Q: Why did you choose to try them?

GP: Most brokers will tell you they have a core of lenders they work with in the bridging market. You get used to each other’s quirks and you know what to expect and how to work with each other so you get the deal done quickly for your client. But as a broker you’re always working to find the best deal for the client and it’s important to try other lenders to see what they have to offer I think. Fincorp doesn’t charge fees into the deal or out of the deal. So while they’re charging 1.5% a month actually when you compare that to a lender charging 2% on the way in, 1% a month and a month’s interest on the way out there’s a break even point, before which Fincorp is actually giving the client a better deal.

Q: What do you find best about working with them compared to other lenders?

GP: Fincorp is very straightforward and professional to deal with. A lot of bridging lenders are acting like high street banks more and more. They want accounts that go back three years, payslips, documents here, documents there and often they want all of that at the last minute before the deal completes. That’s very poor case administration in my view. Bridging is expensive but clients are prepared to pay the premium because they get speed and fewer hoops they have to jump through than with high street banks. If you’re making them jump through all the same hoops then it’s hard to justify the premium price I think. Fincorp does rigorous AML checks and still wants to see the requisite documentation but they ask for what they need up front and don’t surprise you with last minute requests. They’re much simpler to deal with than some lenders and you can speak directly to the directors which speeds things up considerably.

Q: What makes a lender good from a broker’s point of view?

GP: It comes back to knowing what you’re going to get from them. Clients don’t necessarily want the cheapest deal; they want the money if they’re told they’re going to get the money. Lenders backing out at the last minute are the biggest mess up you can have in bridging. You send in all the forms they ask for at the outset, get the valuation done, the client’s credit report, accounts, whatever it is they need and then the day it’s due to complete they start asking you questions they should have asked on day one. We want a lender that does what it says on the tin. That’s Fincorp. They’re simple and they do what they say they’re going to do. I’ve been impressed when dealing with them and to be honest I wish we’d dealt with them before.

Q: Why should other brokers try them if they feel they’ve got good relationships with other lenders in the market?

GP: It’s a good question. In some ways brokers will think, why try driving a BMW when you’re already driving a Mercedes? A lot of the bridging lenders in the market do offer the same sort of things but each has its own personality and they all do deals in a slightly different way. Fincorp has its niche – they stick to the knitting. They lend in London and southern England and do a lot of refurb finance but to be honest that’s where a lot of this sort of business is done anyway. We’ve also just done a deal with their partner Martyn Smith at Bath & West so there are opportunities to do deals a bit further afield. I think there’s also a perception that bridging is all about the rate and Fincorp is charging 1.5% a month. But you have to find the most appropriate product for your client and that does not always come down to rate in the short-term market. Fincorp doesn’t charge fees and that can make a huge difference to the cost of the loan. There’s also the speed they get things done. Most clients use bridging because it’s fast, not because it’s cheap – it isn’t. Fincorp is one of the faster lenders and there are no nasty surprises for clients at the last minute. We work for the client – that’s our most important consideration. We want to work with lenders who don’t let us or them down. And Fincorp doesn’t. 

Fincorp thinks: London property prices will keep rising

The thing about asset price bubbles is that they’re only bubbles if they burst.

There has been a lot of hype surrounding the London property market following the several government schemes launched in the past 18 months. A combination of Funding for Lending and Help to Buy has lent both financial and psychological support to the housing market and prices in the capital have recovered very strongly. But let’s actually look at the numbers.

Mortgage lending has also had a good year. The Council of Mortgage Lenders recently published 2013’s lending figures showing its members granted 268,800 first-time buyer mortgages over the year. These accounted for 44% of the total of 605,100 offered for house purchases, making it the highest percentage since 2000. Despite that rise however these numbers are still significantly below the levels seen in the years before the financial crisis.

Meanwhile the Land Registry has also just published statistics for 2013. Seasonally adjusted annual national house price growth was 3.5% across the year, bringing the average property price to £247,549 for England and Wales. The number of transactions on the other hand saw a sharp increase, rising 19% to 747,479, their highest level since 2007.

But though these numbers are encouraging and we should be relieved the property market appears to be on the road to recovery, the public reaction to them is overcooked.

Transactions at their peak were over 1.2 million per year. We are still miles off that. The issue this leaves the market with is supply and demand. The RICS January Residential Market Survey claimed a shortage of homes coming onto the nation’s housing market is seriously hampering growth and pushing prices higher in many parts of the country. During January, the number of houses coming up for sale across the UK hit its lowest point since July 2012, despite the number of potential buyers continuing to surge ahead in most areas.

This is particularly problematic in London. I’ve seen properties in prime London valued at £7,000 per square foot. It beggars belief when you stop and think about it. And it’s not just in Mayfair and Chelsea we see prices like this. Even in areas that have only recently “up and come” such as Hackney in East London property values are going through the roof. The average price in prime central London grew 12.3% to £1,447,894 over 2013. As lenders focused in the capital I have to admit the market seems frothy. But I just can’t see where this is going to stop.

The fundamentals are there and although it seems absurd that prices should keep rising at this breakneck speed, a lot of this is not being driven by lending at all. Foreign cash is still pouring into London’s prime market and we are witnessing the trickle effect of that in the mortgaged property market.

Real people who want and need to live in London are being pushed further from the centre of the city and paying more for their homes. That in turn is pushing those who lived there further out still. Landlords and property developers are capitalising on this, buying up property in less good condition and either selling it on for a healthy profit just months later or letting it out for an equally healthy sum. Rents are now in excess of £1,000 a month according to the latest figures from LSL Property Services, and income yields are between 5% and 9% depending on the property type. In an economy where most savings rates are below inflation and companies are still reluctant to pay large dividends it’s understandable that more people are considering property investment as a way to generate income.

Accusations levelled at Help to Buy are equally ill informed. Halifax published its lending figures in early February showing that it turned away 80% of applicants for the scheme because they didn’t meet affordability criteria. Also interesting is the average property value for its Help to Buy scheme applications - £157,660. Not exactly house price bubble levels despite the scheme being available on house purchases where the property is worth up to £600,000. Even the average amount lent to borrowers in greater London is only £280,000 and only 20% of the borrowers Halifax lent to on the scheme were in London and the South East – four out of ten were from elsewhere across the UK.

Talk of a house price bubble in London is easy to understand given how fast property values are rising. But it is just talk – political scaremongering lead mostly by Labour and the Liberal Democrats in fact, presumably trying to undermine the credibility of the Tories’ economic recovery plan.

Ultimately the price of anything is what someone is prepared to pay. London is a major cosmopolitan city and with a relatively benign government and tax environment. And with property in the capital so scarce, unless the government starts building on a very large scale, the law of supply and demand will mean prices keep rising.