January 2018
By D’mitri Zaprzala, Head of Sales, Octopus Property
With traditional lenders being unable or unwilling to meet the funding demands of skilled property professionals, more and more alternative lenders are entering the market. As competition from lenders increases, it is of paramount importance that brokers have a robust understanding of a lender’s source and depth of funding to ensure they are securing the right type of financing for borrowers. How long has the lender been in the market and can they truly deliver the certainty of funding that is crucial to brokers and borrowers alike?
Underpinning everything is the variety of funding lines available to lenders. How much money do they have and how quickly can they access it? Does the lender have absolute discretion over the money they lend? Are they reliant on recycling funds before they can write new loans? The more successful lenders will have a diverse range of funding sources, perhaps with a combination of retail and institutional money or with separate commercial and residential credit lines in order that they can consistently deliver on their promises when lending.
When it comes to considering which lender is best suited to their client, brokers need to ask key questions such as: “do they have a proven track record?”, “have they lent through the tougher times and emerged in a stronger position?” and “how do they treat borrowers if things don’t go to plan?”. The answers to these questions will tell you a lot about a lender, their ability to deliver and how they will treat you and your client once the loan has completed, regardless of difficulties and challenges.
Brokers should also consider the type of loan they are placing and look carefully at the experience that lender (and its funder) has in delivering such loans? Take development finance for example, which is significantly higher up the risk curve than more vanilla investment finance. Has the lender dealt with the complexities that often arise once a build is underway? When it comes to development or refurbishment finance, brokers should also consider whether there is any risk of the lender getting cold feet half way through. We’ve seen developers left high and dry as funding is pulled before the scheme is anywhere near completion. Added to this, the best lenders will also understand the macro landscape: construction and labour costs, monetary policy, regional demand/supply dynamics – all of which impact on the development process and should be factors in the back of a lender’s mind when committing funds.
Whilst it is an exciting time for specialist property lending, it’s a competitive landscape set within the backdrop of economic uncertainty. Against this, top-quality brokers need to be constantly considering the above, taking an almost forensic approach to their decision-making process and successfully navigating the increasingly crowded lending landscape. By doing so they’ll avoid poor lenders, ensure that their clients get an optimal financing solution and do business with them for many years to come.