Members of the Association of Short Term Lenders saw their bridging loan books grow to a record £4.62bn at the end of the second quarter of this year.
And there’s fair reason to think demand is going to continue to grow in future. Recent figures from Masthaven’s Broker Beat report show that short-term lending is the third biggest growth area within specialist lending, after remortgaging and later life lending.
Increased business is to be welcomed — but it also brings into focus the role of the underwriter. The bridging underwriter has the challenging role of determining the risks involved in lending the money to a client while navigating potential issues.
While a good underwriter can minimise stress and help a lender understand the risks involved in lending to a client, a bad underwriter can waste precious time and miss essential details that may change the risk levels entirely.
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So what makes a good underwriter for short-term lending?
Attention to detail and specialist knowledge
When it comes to underwriting, the more granular the detail, the better. First, you need to cover the basics, such as project viability, LTV credit and transaction structure. You also need to dig deeper into the particulars of the case. For example, if a client needs a loan against four securities, how many of these are currently buy-to-let properties? Which is the purchase property? Does it need a lot of repair work? Can the client’s cash flow cover the repair work on the property as anticipated? By assessing the client’s entire property portfolio, can you ensure the customer will be able to make up any shortfalls they may encounter? Despite the numerous hurdles that can spring up, having strong knowledge of the intricacies of the case is crucial to all aspects of the underwriting process, and it will also save time down the line by ensuring a smooth application process. In the short-term lending world, this is particularly important as time is of the essence, so any delays can have an impact on completion.
Most short-term cases are complex and although there are many products available, there are many cases with idiosyncratic needs that require more creative solutions. Therefore, in order to meet a client’s needs, it is sometimes necessary to think outside of the box. Thinking of different ways to shape and mould available products so that all the customer’s requirements can be fulfilled will ensure the client’s satisfaction. Many of our customers have been turned away by high street lenders offering inflexible financing options. It is important we employ some lateral thinking to help our brokers find the best options for their customers.
For Masthaven, the relationships we have with our brokers are fundamental to our business and our customers. Proactivity is key and we encourage everyone in the team to communicate, share knowledge and keep everyone informed. An underwriter who gets on the phone when more information is needed and keeps a broker up to date is vital. A willingness to engage with everyone in the application process to work through problems will encourage a higher level of respect and trust, which is necessary when dealing with sensitive client information.
Perhaps one of the hardest parts of the world of lending is that, occasionally, you have to say no. Most of the time, especially with short-term lending, the borrower has pinned their hopes to this injection of cash, and their application being declined can cause upset. When this happens, a lender wants an underwriter who can explain fairly, clearly and, importantly, with empathy.