With relatively low barriers to entry and a continued impetus from mainstream lenders not to lend in the bridging sector, there has been an abundance of new specialist firms entering the market.
This has led to a growing population of lenders offering very similar, commoditised products, especially at the lower end of the market, which in turn has had a downward pressure on rates.
Borrowers and brokers now have a vast array of options when it comes to bridging and can pick and choose which lender they want to use, whether it be an exclusive new low rate offering or a lender they know and trust.
Having the pressure of managing committed funding lines and associated non-utilisation fees, it is not surprising that lenders have responded with predatory pricing tactics and marketing campaigns to match. The number of adverts promoting eye-catching rates would suggest the borrower is going to be the winner in this struggle. However, we question whether this is actually the case.
Our conclusion is that whilst there has definitely been a reduction in rates and a plethora of new offerings, we are at danger of misleading those who are new to this type of finance by only stating headline monthly rates in our promotions. More often than not, there are additional fees added to bridging facilities, so a headline monthly rate doesn’t provide borrowers with the true cost of finance and makes it difficult to calculate whether they’re getting a competitive deal, let alone the best.
Within the regulated sphere of the market, financial promotions rules state that lenders must state an annual percentage rate (APR) figure; the total percentage rate of interest that is charged against the advance/amount of finance borrowed by a customer.
The APR includes the flat/fixed interest rate charged by the lender, plus any other administration fees or charges incorporated into the agreement. However, there is no obligation for lenders providing unregulated loans to communicate an APR.
One could argue that unregulated loans are for borrowers more adept with this type of finance but, as many commentators have stated, the unregulated bridging market is over £4bn, which suggests it is becoming a much more common method of finance.
We believe that it is now time for the APR measure to be adopted by firms such as us, providing bridging and development lending, and we should be careful that we don’t inadvertently hide the cost of the service we provide.