Article Facts

That’s it. The deal’s been done and you shake hands in agreement with the other party.

Both of you walk away feeling very satisfied with the deal that you have just done together. You know how much you have to pay; he knows how much he is going to receive. That is until you are further along in the transaction of course. Suddenly, the other party decides to increase the fees that he is charging you, change the fee structure completely or introduce a fee that was not previously agreed.

You ask yourself, “Who would do such a thing when it comes to bridging loans?”

A non-reputable bridging loan lender would do this. This does not happen often as there are not too many lenders of this type around these days but it certainly does happen! The reason a bridging lender can suddenly switch the fees as they wish is because they can.

A bridging loan is typically not regulated by the Financial Services Authority (FSA) and this absence of regulation makes it much easier for a bridging lender to ignore the principles of Treating Customers Fairly . It is an unregulated product, at least with respect to the FSA, and this leaves the borrower applying for the bridging loan exposed to some degree.

It’s true that a solid business does not need to have good business practise forced upon it. Good businesses tend to have their own internal code of conduct that will determine if they treat customers well or not. However, a regulatory regime can help if it is well-defined and gives enough flexibility for a business to develop its own personality Such a regime can help a business to sharpen its focus by ensuring that a minimum level of quality is always delivered to its clients.

So, if a client receives clear verbal terms that the maximum Arrangement Fee (or “Facility Fee”) will be 1.5%, for example, legal fees will be 675 and the Valuation Fee will be no more than 1,000, then why should the borrower expect anything else?

However, let’s stop for a moment and consider the view of the bridging lender. At times the borrower does not provide all of the required information for their application. When the necessary checks are then made by the lender, they discover that the customer has withheld important information. Is this an opportunity to add an additional fee to the borrower’s bridging loan?

“As you failed to inform us Mr Smith that you were borrowing through an SPV, we have had to make a number of changes to the agreement. That will cost you a further 840″

Clearly, Mr Smith had not planned to spend close to a further one thousand pounds to secure the bridging loan. But what should he do – pay it or walk away from a, potentially, profitable deal?

Keep all of this firmly at the front of your mind when you are seeking a bridging loan. Regardless of whether you are dealing with an adviser or directly with a bridging lender, bridging loans are unregulated. Repeat this to yourself, almost, mantra-like so that you never lose sight of this potential pitfall. Generally, companies that provide bridging loans are solid businesses, albeit expensive. But it only takes one lender to ruin your experience of what is an essential part of the loans marketplace. And be under no illusions, bridging loans are an essential part of the financial market mix.

Always present your advisor or lender with all the facts upfront i.e. make full disclosure. If you do this and they adhere to good business practice you will more than likely be issued firm terms very early in the process. The lender will then stick to these terms which will lead to no change in the fees in securing your bridging loan.

You can find more articles on (http://www.bridgingloandirect.co.uk/a-bridging-loan-pitfall-to-look-out-for/) fast bridging loans at the Bridging Loan Direct website. In conjunction with (http://www.bridgingloandirect.co.uk) bridging loan specialists they are always happy to assist.