It is commonly known that a sudden change in a bridging loan’s terms can halt a borrower’s plans and heighten frustrations among brokers.
In a recent LinkedIn post, Elan Property Finance director Shazad Ahmed noted his four main reasons why a lender may ‘change the goalposts’: ‘down valuations’, cost-of-works impacting the LTGDV of a scheme, a lower than expected GDV, and a lack of evidence submitted at enquiry stage.
Shazad was surprised to find himself defending bridging lenders: “It’s important to realise a few things; lenders, as the name suggests, are in the business of lending — they want to get the money out the door.
“Lenders do not make any (much) money until they lend you the money — they want to get the money out the door — would you lend someone a hefty chunk of money without any due diligence and risk management?”
B&C asked other industry professionals on what elements they think can cause changes to loan terms
“It could be that the application submitted differs from the initial enquiry,” said Maeve Ward, head of intermediary sales at Together.
“Some examples might be adverse credit; an unknown title issue; lack of planning, or, if the loan is serviced, upon evidence of income it showed lower than initially thought, which might then lead to affordability challenges.
“Other reasons could be that the exit strategy isn’t plausible or [is] without a contingency plan, or that there has been a drop in value from the initial valuation that would be outside the control of the applicant, broker, and lender.”
Market volatility and new lenders
Macroeconomic factors could also play into why borrowers see deals change unexpectedly.
Karen Rodrigues, head of sales at MFS, commented: “There’s a lot of uncertainty lingering at the moment, and some bridging lenders may not have as much confidence as they once did a few years ago.
“If bridging lenders are unsure of how the base rate will move, or are deflated by rising inflation, it may cause them to take a second look at their terms,” she added.
Karen also claimed that new bridging lenders that have misjudged the market have also largely contributed to a rise in ‘changing the goalposts’.
“We think some lenders underestimated how much work goes into the bridging scene,” she explained.
“We’ve seen many mainstream lenders enter the bridging market in recent years, while new specialist lenders often popped up to try and take advantage of a perceived easy opportunity.
“But understanding what’s needed in bespoke lending is easier said than done — it’s not something you get into trying to make a quick buck.
“As the challenges came to light, lenders likely had to reorganise their affairs in a last-minute scramble.”
A change in funding line
From a broker perspective, Roxanne Goodman, managing director at Goodman Corporate Finance, cited a recent £3.8m bridging deal which fell through at the last minute due to a lender’s new investor and funding line.
The rate of the loan was raised from 8% to over 9% overnight, with the loan amount slashed by £600,000, in addition to fees being increased.
“A change of funding line for example can mean that an initial offer no longer meets the new investor’s credit policy, so the deal is re-priced or pulled altogether,” Roxanne explained.
“Some lenders only do their final credit checking the day of completion, therefore if a CCJ or default has been hidden by the client, this will only show at such a late stage the lender will have no choice to reassess their risk.”
Patrick Coughlan, director at Align Property Finance, agreed that funding lines can create another layer to the workings of a deal, with lenders may needing to receive further credit approvals from funding partners to push ahead.
“If the funding is provided by a bank, this will usually mean that funds are available via deposits,” Patrick noted.
“If funds are provided by external family offices, does a lender need to approve a deal internally first, ahead of going to their funding partners for a final rubber stamp?
“If so, this can also mean that further conditions are added as the due diligence process is undertaken.
“Knowing upfront how a lender is funded (family office, external funding lines, HNWIs, deposits etc) is very important,” continued Patrick.
Renegotiating after a surprise valuation
While a valuation coming in lower than expected can be disheartening, everyone in the transaction chain can help mitigate this.
“It’s important for all parties involved to collaborate and find solutions to keep the deal moving forward,” said Jamie Pritchard, managing director of sales at Glenhawk.
“Discuss the valuation results openly and explore the reasons behind the lower-than-expected figures.
“Review the project’s scope and identify areas where costs can be reduced or value can be added — this might involve adjusting renovation plans, re-evaluating timelines, or finding efficiencies in the development process.”
Jamie suggested that loan terms could be renegotiated to accommodate the new valuation by either adjusting LTVs, extending the term, restructuring the repayment plan, or the borrower offering additional collateral.
Patrick noted that when it comes to LTGDVs, a lender may be willing to stray outside their comfort zone and offer a larger figure if they are trying to retain business from a well-established client.
Roxanne also emphasised that a lender may be willing to be flexible by extending the LTGDV outside of their normal criteria if the client was HNW, or if press coverage of the deal made the higher level of risk worth the reward.
Piecemeal information
As noted by Shazad, a lack of evidence for information provided at the enquiry stage can result in the lender changing its terms, as can details that are not provided at all but surface later down the line.
“A lender can only make an upfront lending decision on the information available, so if something isn’t disclosed or requested, this is when problems can occur,” said Claire Newman, director of bridging and development finance at Spring Finance.
She stressed that it was up to the lender, as well as the broker, to understand a deal; Claire has experienced a series of cases needing further clarification to understand the requirements of the applicants, as well as the risks of the deal.
“While I am clear speed is important from a customer perspective, a robust, fully considered credit-backed set of terms is going to help a deal run as smoothly as possible.
“It is so important when a broker presents terms to a client that they have the confidence the lender will do all they can to deliver the loan as per the initial terms.”
Patrick added: “It may sound like common sense, but sometimes things are missed at the get go and, if this was known, it may have been a deal breaker on day one rather than five to six weeks later.
“Each lender will have their own appetite parameters and quirks, and it’s a broker’s responsibility to place a client with the most appropriate and suitable lender based on these.”
Steve Burns, partner at Word On The Street, highlighted that initial terms are just that, initial, reiterating they can be based on basic information.
“As a formal application is made, detail becomes enhanced [as] the valuer, PMS, [and] legal advisers get to work,” he stated.
“I’d suggest many turn out to be not what was first presented, and lenders therefore have to revise their terms.
“That’s not moving goalposts, it’s lenders doing a good lending job.”