'Very limited' number of bridging lenders can offer more than 70% LTV
There is a definite shortage of bridging lenders who have the ability to look at an individual proposal and offer higher gearing than the current norm, one specialist finance broker has claimed.
The comment comes after recent research from mtf found that 42% of brokers would like to see higher LTVs on offer in the bridging market.
In its latest Bridging Trends report (Q4 2017), mtf found that the average bridging LTV was 45%, down from the 49.6% recorded in Q3 2017.
Should more bridging lenders offer higher LTVs?
“There is definitely a shortage of lenders who have the ability to look at an individual proposal and offer higher gearing than what is currently seen to be the ‘norm’,” said Chris Whitney, head of specialist lending at Enness Commercial.
“The number of lenders who genuinely can offer more than 70% is very limited, and if we exclude the lenders who advertise 75%, but rarely deliver at these levels, the choice is few and far between.”
Chris explained that the restrictions in LTV have been caused by how lenders are funded, with many having to seek institutional or P2P investment, which has resulted in more restrictive underwriting.
“We have fewer, smaller, more nimble lenders with private funding than we used to, which is a shame.
“As a broker, I would like to see lenders being free to underwrite specific cases on an individual basis.”
Stephen Burns at Adapt Finance added: “Lenders need to set their LTV parameters based on what they find comfortable.
“Clients need to repay short-term facilities and can only do so if other long-term options present an LTV at debt level or above.”
Chris Fairfax, managing director at Positive Lending, said LTVs should be sensible for each loan.
“Higher LTVs should be available to applications that merit such lending, but it is important [that] interest rates are not excessively high as when interest is deducted it very quickly erodes any advantage of taking [on a] higher LTV product.”
However, Jo Breeden, managing director at Crystal Specialist Finance, added: “I don’t think we need to go higher at the moment, but of course we are always keeping abreast of how the market develops in terms of requirements.”
What are the dangers of offering higher LTVs?
“My personal view is that bridging lenders should not be offering higher LTVs unless there are definite reasons why stretching standard limits could be considered,” said Benson Hersch, CEO at the Association of Short Term Lenders.
“This would include cases where the borrower has significant other assets or where the funds are being used to fund improvements, which will significantly increase the value of the security property.”
Andy Georgiou, business development manager at London Credit, added: "The broker and borrowers' needs for higher LTVs need to balance with lenders' requirements.
“These are first and foremost to lend in a prudent manner that evidences a realistic exit strategy for the client.
“It is not good business practice to offer higher LTVs if the borrower(s) cannot exit the deal because of more onerous BTL stress tests, or other restrictions that must compensate for the higher LTV loan." ?
Matthew Tooth, chief commercial officer at LendInvest, said that in the past any broad move up in LTVs could cost bridging lenders heavily when the credit cycle turns.
“Leverage comes at a cost, and while some borrowers wish to maximise this, many borrowers appear to be more comfortable with an average LTV between 60-65%.”
Simon Chapman, relationship director at Amicus Property Finance, added: “The industry needs to ensure it maintains integrity of lending and while some may choose to tailor lending at higher LTVs, this is not something Amicus has plans for.”
What is a sensible bridging LTV?
“Most lenders are comfortable around 70-75% LTV, with some squeezing that up to 80%,” said Jo.
“I think that is sensible and has resulted in the bridging market becoming much more transparent and respectable.”
Aspen Bridging provides finance at the higher end of the LTV scale, offering products at 80%.
“These are common in the wider mortgage market and for the right properties are reasonable,” said Jack Coombs, director at Aspen.
“Customers and brokers alike need a bridging product that reflects the real risk and offers them loans on a something for something basis.”
Vishal Dixit, head of business development at Pivot, said LTVs were dependent on three factors.
“Quality of borrower, quality of security and the exit.
“These three core values are entwined with risk appetite and expertise and from there we can make an informed decision.”
Meanwhile, Jonathan Sealey, CEO at Hope Capital, said that as a standard, 75% was about right, but it shouldn’t be set in stone.
“For example, in a case where we knew the client well and knew they had lots of experience of refurbishing properties, we were prepared to offer an LTV of 87%.
“We were confident that the property would be worth considerably more once the refurb was completed and it was; once it was finished, the LTV dropped to 50%.
“However, we wouldn’t support LTVs to be higher than 75% as standard; problems tend to come with tick-box lending.”