Looking for more transparency
08 Aug 2019
One of the guiding principles on which FIBA was established is that we strive to ensure that standards in the industry are maintained but also improved. Recently, we have taken the opportunity to look at the subject of transparency around the fee structures of some specialist property finance lenders and in this particular case, short term lenders.
As you may have seen in a recent trade press article, the issue centres round the absence of clarity concerning these rates of interest charged when a customer goes past their end date for repayment and needs to extend the loan period. These instances can be because of cashflow problems or simply because the project being worked on has run over.
Of course, lenders have the right to set their criteria to lend as it is important that a tight rein is kept on funds that are out with their customers and I am sure the intention is not to hide or obscure the true costs. In addition, there are a number of advisers in the process, including the customer’s solicitor, who are acting in a principled manner to make this information available to the customer. We are just seeking a way of making this simpler to view at the outset of the process.
Regardless of whether the lender is or isn’t regulated, the principle of ‘caveat emptor’ or ‘buyer beware’ does not apply nor is it a substitute for treating customers fairly. Customers and their advisers have the absolute right to know in advance what charges will be levied during the potential lifetime of a loan and beyond. Terms and conditions when made clear and easy to digest mean that there is no room for doubt that when a contract is made, when each party is fully aware of the terms of the deal, it will always lead to a better outcome for all.
To that end, FIBA will now publish data on all customer rates for all of our lender partners in the members’ section of the FIBA website. This will include additional fees and rates for extending the term of a loan. We work very closely with all of our lenders and not one so far has raised any objection to our stance. It is vital that our members have clear and unambiguous guidance so that they in turn can be confident when they advise customers as to the best options. Our lender panel aims to represent not only the best of breed, but also those whose terms and conditions are completely clear and utterly transparent.
While I would say that the specialist property finance sector has much to be proud of overall, in terms of rates, loan purposes and its sheer variety, it is true that some lenders in the market may not be as clear and open about the charges or extension rates it applies to borrowers during the life of the loan and we would like to help make a difference .
I have spoken many times about the value that FIBA offers to its members in terms of facilities and as a voice that is heard at the highest levels of government. However, its mandate is about the maintenance and improvement of standards and we shall continue to call for transparency and fair dealing in every aspect of our industry.
There are new lenders joining the short term lending space all the time and currently there are no real barriers to entry for any firm with a funding line to open for business in the non-regulated sector. As a strong believer in a free market, I feel there is much to recommend the pioneering spirit of enterprise that makes room for new lenders to emerge and add to the multiplicity of choice available to advisers and their customers. After all, competition is the lifeblood of any healthy industry and provides the spur for innovation, service and helps to drive costs down.
However, there is a danger that in an already crowded market the imperative to write new business can increase the likelihood of credit policy and underwriting standards being compromised.
Trying to establish a presence in a successful market like the short term lending sector as a newcomer is becoming harder because of the sheer level of competition. It takes ingenuity and the ability to demonstrate USPs that can be used to show introducers and their clients that a particular proposition is worthy of consideration. The dangers come when too many exceptions to policy are made for immediate new business gain, but which sow the seeds of longer term inability to manage loans that are more likely to go delinquent because they feel outside written criteria and where exit strategies have been ignored.
FIBA will always welcome new lenders to our lender panel, but we always vet them thoroughly to see that their business plans are sustainable and their offering provides something that can make them stand out, such as demonstrating where they can provide funding in a particular niche, for example.