A law firm is warning bridging lenders of the dangers of procuring legal or surveying services on the basis of price alone, after it emerged many were compromising on due diligence to cut costs.
The alert comes following a study by Brightstone Law, in which it identified a trend where new lenders in the market were seeking to drive down fees by procuring professionals based simply on price.
The law firm said while this might work commercially, on a superficial level it could potentially be damaging to lenders further down the loan journey.
Indeed, it warned a law firm or surveyor employed simply on price might not have the right knowledge, skills and experiences to handle issues and complications which might arise in short-term loans.
And it raised concerns if one of these firms were asked to provide less than a comprehensive service, a so-called lite version, which was appropriately priced, it could end up being delivered by a less senior staff member.
Jonathan Newman, senior partner at Brightstone Law said: “For the first time in all my years of practice, too many to mention, my firm is turning away new custom. The reason is not lack of capacity. Far from it. The teams and practice continue to grow to meet demand.
“Many of these new lenders don’t have the benefit of past experience, or may have erased from their memories, the hard lessons taught in the last recession. These potential new clients appear to have a fixation on price and an appetite for the dilution of service requirements – professional services lite.”
Bridging market evolution
The bridging market – along with the accompanying legislation and regulation – has evolved over the past few years, which Brightstone Law said had led to the creation of more complex challenges.
Meanwhile, the responsibility of firms to deal with their own regulatory issues such as anti-money laundering, GDPR and cybercrime created additional layers of red tape.
This, said Brightstone Law, meant more sophisticated and reliable support was required – but this came at a cost.
Newman added: “In today’s market, these considerations should not outweigh a requirement for the right professional resource, to deliver the right professional job, comprehensively and thoroughly. I hear much about lenders and this risk curve – but those discussions centre on riskier lending, not on watered down, professional relationships.
“More now than ever before, lenders need the right professional partners to protect them, in a market where the pressure is to be flexible and commercial; where the classes of lending are trickier; and where levels of default and areas of dispute remain more common, than in the mainstream mortgage market.
“Lenders need to balance their appetite for greater distribution share, with minimising risk, not by indirectly and unconsciously increasing it.”
By Kate Saines
Source: Mortgage Finance Gazette