ARTICLE
However, sometimes exits do not occur as planned, and just as a borrower would not want to end up paying higher interest rates, fees or losing their security property, a lender does not want a loan book that is not performing as expected. For this reason, it is important to both borrowers and lenders that loans are underwritten responsibly, and this is especially true in times of financial instability where the property market may be in decline.
Specialist property lenders – providers of short-term finance
Borrowers who opt for short-term specialist loans always have a reason for doing so. For example, they may require finance to take advantage of an investment opportunity faster than a mainstream lender can provide funds, or they may not be able to obtain a loan from a mainstream lender due to the specifics of the property or their credit history. Regardless of the reason, the basics of specialist property finance remain the same – the borrower will offer up a property as security to obtain the loan, with the knowledge it is at risk if they cannot repay the debt when it falls due. Because specialist property loans are always short-term, a lender needs to be confident that the borrower can exit the loan before proceeding further. A successful exit can take various forms, such as refinancing onto a longer-term product or selling the property.
What is responsible lending?
Responsible lending, amongst other things, is about ensuring that the borrower has the best chance of a successful exit, and restricting lending where there is no plausible exit strategy. In practical terms, this means that a thorough assessment of the borrower’s intended exit will be required, ensuring that it is considered viable. Where the intended exit is to refinance onto a longer-term loan, this would involve assessing the likelihood that the borrower and the property will be accepted onto a product from the preferred refinance lender, or otherwise assessing if a suitable loan will be available from another
"RESPONSIBLE LENDING, AMONGST OTHER THINGS, IS ABOUT ENSURING THAT THE BORROWER HAS THE BEST CHANCE OF A SUCCESSFUL EXIT, AND RESTRICTING LENDING WHERE THERE IS NO PLAUSIBLE EXIT STRATEGY."
THE LEGAL CORNER MAGAZINE | ISSUE 002 JANUARY '23 | BANKING & FINANCE SPECIAL HB 12
Made with FlippingBook - Online Brochure Maker