Its clear that there are still many lenders in the market for the right transactions - an its clear there are some that, despite the rhetoric, are not.
Obtaining quotes this week on a pretty straight heavy refurb showed me this. Most of the usual suspects are still there. And by the terms quoted, some are not. Yes, no harm in being cautious in the current market, but quite clearly some are out.
But despite recent rises in Base Rate, 14 in recent times, the cost of bridging has not increased in line with this. I've talked about the funding of the short term lending market before - many now, if not all, will have funding linked directly, or indirectly, linked to Base Rate.
Even I can work out margins are being squeezed. Is risk being priced properly, or is risk being priced for market share?
And this needs nicely into a discussion of fees. And penalties. And treating customers fairly.
Some in the short term lending industry have called for lenders to show greater forbearance when borrowers are coming to the expiry of their current facility. Easier said than done (back to how they are funded) and all too tempting as a lender to enforce the terms of their loan to increase margins and charge fees.
Simple question to any lender - in your budgets for the forthcoming year, do you assume your income will include an element for default interest and fees? If the answer is yes.....
There has always been a question mark about default (penalty) interest and its enforceability. In the case of Ahuja Investments Limited v Victorygame Limited (2021) the court held that a default interest provision in a loan agreement was a penalty clause and therefore unenforceable. The case needs to be read but it also stated the burden of proof lies with the party alleging that a clause is a penalty to show that the secondary liability is " exorbitant, extravagant and unconscionable".
As a game keeper who has now turned poacher, they way I look at a lender is very different. I ask any borrower not to be seduced by the headline rate and look at ALL the terms.
Clearly any entity regulated by the FCA, will have to demonstrate that their actions do treat customers fairly. Even the Association of Short Term Lenders, under their charter, require all members to operate to these standards - unclear what happens if they don't of course.
Its all too tempting as a lender to look to all the terms of your loan agreement to eek out further income when margins are being squeezed, but I see little or no benefit of charging a higher rate only having to provide for it later when the loan goes wrong. And it's often the case that the default interest is negotiated away to see capital repaid. Yes, a lender should be able to recover all reasonable costs in enforcing and protecting their security, but it shouldn't be a profit centre.
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