D’mitri Zaprzala, Head of Sales, looks at why getting accurate information at the beginning of the lending process can help create successful deals.
Customers with more complex cases, who need speed and flexibility, turn to us as a specialist lender. But lenders can only move fast when they get all the correct information upfront to complete on a deal. This can also favourably influence deal terms.
We’re here to lend and want to help customers meet their aims. However sometimes essential facts are not supplied, and we then uncover this later in the assessment and credit approval process. It can lead to changes in deal terms, or in some instances, we’re unable to proceed with the loan request. We know how frustrating this can be for brokers and borrowers, and it’s something we want to avoid too so disclosing all information from the outset can only help your request.
#1 Valuations not matching up with expected property value
This is one of the main reasons the terms on a deal change. Borrowers sometimes overvalue their property and when we receive our independent valuation report, it’s worth much less than originally thought. We use a panel of third-party valuers with knowledge and experience of the location where the property is located.
This affects our loan-to-value criteria. It can result in us reducing our gearing and the amount we can lend a borrower; sometimes meaning the deal just does not work for the client because the loan amount is reduced.
#2 Credit searches highlighting undisclosed adverse credit
While specialist lenders do consider adverse such as missed secured payments and county court judgements, they need to be aware upfront. We run credit searches during the underwriting process and will identify any inconsistencies between the information provided and what we review on a credit file. Similarly, if we perform a renewed credit search later on, more recent activity will show up on the credit report.
We recently found that a client’s business had gone into administration with hefty debt after our initial searches. This meant the offer had to be revoked. Yet had we been told honestly and openly, we could have considered a way to progress with the deal.
#3 Commitment from clients changing last minute
To be as efficient as possible, it’s helpful to get greater commitment from the borrower early in the deal process.
For example, we’ve seen a few deals where an equity partner has pulled out last minute due to problems with the title that have cropped up during the legal review. In another case we were working on a re-write for a client and just before completion they changed their mind. This can create unnecessary work for brokers, lenders and solicitors. It also creates additional legal fees and diverts us from adding value for our clients.
#4 Confusion around land ownership
Unregistered land, or confusion over who owns the land a property is on, can undo a deal.
Recently, during one deal process, we found a report on title showed that a refurbishment had been completed on unregistered land. On another deal a strip of land that had to be crossed to access a new development (a ‘ransom strip’), was owned by a 3rd party, meaning at any time the owner could demand that no one cross it.
These issues don’t always mean the end of a deal. When clients tell us about such problems, we can try to help resolve them. In some cases, we wait for clients to buy land and get it registered with the local council. But again, we need to know as much about the deal and potential challenges upfront.
#5 Missing documentation or responsibilities under UK law
Taking a deal through to completion includes closing gaps in the borrower’s documentation and transactions. We recently worked with a client who owned several buy-to-let properties on which he hadn’t maintained his landlord responsibilities under UK law. He hadn’t provided tenants with copies of gas safety certificates before getting them to sign an Assured Shorthold Tenancy Agreement (AST).
We tried to give the client the time to get their affairs in order. In this instance we offered him a fix of signing new ASTs with tenants within thirty days of completion, however the borrower decided not to take it.
#6 No update on changes to works for refurbs and developments
We know that property development is not always straightforward, which is why we move in line with borrowers’ changing requirements. But we need to be kept up to date on changes to works as they occur. It’s also imperative to have this information so that the borrower is on the right product with the best terms.
We recently worked on a deal that was on our refurbishment product. However, during the process, new plans for a multi-storey extension weren’t declared. When this came to light, and due to the scale of the works, we had to move the borrower onto a development product instead. This meant we had to change the terms and get a new set of signed documents at the last minute.
#7 Lack of consent for proposed works
We go into deals knowing we’ll need to work with multiple parties and meet everyone’s requirements. For deals to succeed, we need our partners to do the same. This includes having the freeholder’s consent for proposed works.
We recently worked with a borrower who approached us for a loan with plans to re-model a flat into a house of multiple occupation. The rest of the deal was aligned with our criteria, however later in the deal process we found out that they didn’t have the freeholder’s consent, meaning the deal couldn’t proceed.
#8 Full asset description not supplied
Lenders need a full description of an asset. For example, we worked with a borrower who applied for funding to buy a flat. After visiting the property we identified a bar with a late licence situated beneath it, which the borrower hadn’t told us about. In view of the impact on people in the vicinity, and the property’s value, we restricted loan-to-value terms.
#9 Lack of clarity around source of wealth and source of funds / deposit
Specialist lenders support more complex clients such as foreign nationals and expats. But reviewing higher than average risk customers is as much a mantra for non-bank lenders as any bank.
A key element here is source of wealth. As a responsible lender and to satisfy our obligations under the money laundering regulations, we need to understand and be comfortable with the client’s wealth and how this has accumulated. We may ask for supporting documents to help build that picture.
We also need to understand the source of the funds that are to be used in the deal. Finding out that the client’s deposit has come from a different source than originally thought can delay or even lead to a deal being declined, especially when they are from a high-risk country.
For example, a foreign national from a country that is considered higher risk recently told us that they had earnt their wealth working at a large multi-national company and had saved the deposit from these earnings. However, after reviewing documents including accounts and payslips, we found that their earnings couldn’t have possibly raised such a large deposit. Subsequently they said that they had actually been gifted half the money which couldn’t be verified, meaning we had to cancel the deal.
As always, what’s important is getting information upfront.
#10 Obstacles with existing lenders
We always work to refinance existing lenders quickly and efficiently, but issues that aren’t declared on the application form can hold up a deal.
One recent example includes us finding out that a borrower had a possession order from their current lender on the property. We were able to work with this but arriving at the information late slowed down the deal.
Another relates to how borrowers sometimes come to us because we can offer better value than their renewal terms with their existing lender. However, in this case, when we requested a redemption statement following legals and valuation, the incumbent lender offered new bridging terms to try and retain the client.
All of these points reinforce the importance of telling lenders about things that could affect a deal upfront. Brokers and borrowers are then likely to receive a fast and hassle-free process to completion.
