The finance broker landscape is changing. It appears to be driven by the surge of new entrants into the residential development lending market.
GPS has been asked to participate in several new online platforms where we “tender” for loans.
I have built GPS on a base of repeat and directly referred clients. Our clients appreciate the experience, certainty of funding, and service levels we provide.
On our investor side there are no financial planners, or other intermediaries, involved. This generates certainty that the funds will be there when required by our borrowers. The funds have already been raised and are not going anywhere.
This strength was particularly evident when COVID-19 hit. Some financial planners got a bit nervous and recommended their clients put in withdrawal requests. This created liquidity concerns for other lenders who rely on financial planners for fund raising. We didn’t see any of this at GPS, as our direct investor base had confidence in us.
While GPS does work with several finance brokers, we generally restrict our panel to finance brokers who add value for their fee.
I am struggling to see how a tender process will work for residential development lending in South East Queensland on several levels.
It’s a complex business.
Residential development lending is complex and cannot be homogenised. A lot of information is required before a competent lender can decide on whether they want to lend on the proposed project, and what to charge.
I can’t lend when it is based on a generic checklist. Being polite – GPS investors would not be impressed.
A tender process drives an interest rate centric search for a lender. Interest rate is not the only factor a borrower should consider when choosing a lender. Other factors include:
- the certainty that progress draws will be paid promptly;
- what value will the lender add to the project;
- how do they deal with problems during the life of the project;
- their service levels, etc.
Who pays?
Use of a platform adds another layer of fees which someone must pay. Lenders like GPS don’t absorb finance broker and platform fees. It is the borrower who pays.
The question in my mind is whether the potential savings in the cost of the finance, by use of a platform, are absorbed by the intermediary costs.
I can see a situation where, shortly before settlement when it is too late to obtain an alternate lender, the lender notes something which was not disclosed in the generic tender material and withdraws from the deal. Or increases interest rates and fees to cover the additional risk.
How safe is your data?
Will potential borrowers know that a platform is being used and that their financial information, project intellectual property, and personal details are being hawked around many lenders?
I don’t need to be polite here – if I did that to a GPS borrower, I would expect them to get stuck into me.
Often scenarios are placed on a platform by another finance broker; this can encourage a “broker daisy-chain” where each referrer puts out their hand for 50bps and “clips the ticket” – and it’s just not a good borrower outcome.
Brokers who add value
The finance brokers who work with GPS add value for their clients. They undertake a detailed review and analysis of the project. They identify which lender will best suit the project. Material is presented to the lender in a professional manner. They work with the lender to achieve competitive pricing. They continue to service their client during the project as they want the repeat business.
If these platforms are boycotted by the established and experienced lenders how will it add value for borrowers? Lenders like GPS have established loan pipelines. We don’t need to waste our time on “Lender Tenders”.
I may be a grumpy old troglodyte who can’t grasp technological change, or I may appreciate that residential development finance is complex, and not on a scale that is able to be conducted by way of an online platform.
Only time will tell.
Richard Woodhead| Managing Director
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