When a Good Rate is Not a Good Deal
Tuesday 22nd May 2012: Source
Tomer Aboody, Director at MT Finance, talks us through seeking the best possible deal for clients, and explains when a good rate doesn’t necessarily equal a good deal…
We have recently seen an influx of transactions coming back to us on which we had earlier issued an offer in principal after another bridging lender with whom the borrower had decided to proceed either inexplicably began to drag their feet and/or increased their rates at the eleventh hour.
Whilst we are always happy to have an opportunity to step in and perform, it has led us to ask why the borrower in question did not proceed with our offer in the first instance. The answer from the introducer is invariably the same: “Well the other lender originally said they would do it at a lower rate”.
In an industry where the topic of headlines rates has often been discussed, the vast majority of established and respected lenders have adopted clear and direct pricing policies. However, it is apparent that this approach to transparency has not been universally adopted. Whilst introducers should be encouraged to seek the best possible deal for their clients, they also should be considering a simple question – what premium should be attached to performance certainty?
A good rate is not a good deal when that rate is increased later in the application process after valuation and legal fees have been spent. What does an applicant do then? The original terms are resigned to history.
The case is even more compelling when ultimately the rate, at whatever level, is not delivered because the lender has begun to stall the application.
If a borrower of a bridging loan or otherwise is forced to start afresh with a new lender, paradoxically, once abortive legal fees and the cost of a fresh valuation have been factored into the equation, the total weighted cost of credit would have been the same if they had opted for performance, at a higher rate, to begin with. Equally, had they done so they would have saved time, energy, and themselves and the introducer, a great deal of stress.
Whilst an introducer can never be certain as to whether an application is going to proceed, or whether terms will be subsequently changed, they can increase the chances of success and mitigate the risk of being left with an unhappy client whose terms have just been inexplicably amended by looking beyond rate alone. Just as important to consider is: the reputation of the lender, its quality of service, having direct access to decision makers, and a clear desire on the lender’s part to treat the application with the attention it merits.
In bridging finance, as in life, cheaper does not necessarily equate to better