Jaxon Stevens, sales director at Tuscan Capital, explores scenarios in which lenders change the terms of a deal down the line, and why brokers can play a crucial part in reducing the chances of this happening.

One of the issues that often provoke the ire of brokers in this sector is a lack of certainty from the lender.

The lender may have been keen to send out eye-catching terms when the broker first discussed the case with the business development manager; yet as the deal moves forward, the lender attitude apparently changes - the client is told that the rate will be higher, the maximum loan-to-value will be lower, or even that there will be additional fees to account for.

This puts both broker and client in an extremely difficult position. The client will be left questioning whether they can afford to continue with the case, or even whether they want to, given the changing of the terms.

The situation for the broker is perhaps even more challenging. First and foremost, they must have an uncomfortable conversation with the client about how and why those terms have changed, but there is also the more, long-term impact to the relationship.

Will the client still want to use the broker for their future financing needs? Or will they take their business elsewhere, in the hope of avoiding the ‘moving goalposts’ on future projects?

Doing your due diligence

Ultimately a lot of this comes down to the due diligence being carried out by the lender, and perhaps more relevantly when they are doing it.

Because realistically, almost all lenders will be doing the same checks, asking the same questions about a case in order to determine whether they can go forward with it. It’s not really in a lender’s interests to take shortcuts on due diligence.

The difference however may be precisely when those questions are being asked. At Tuscan we endeavour to carry out all due diligence from the very beginning, gathering all of the information that we need so we can be confident in the terms we issue. So long as the case itself doesn’t change, neither do the terms.

Other lenders may take a different approach, putting off some of those questions until later on, but they will need to be addressed before the case can be completed. That delay can play a part in the resulting changing of terms, so is something brokers need to keep in mind when making their lender/product recommendation.

The role of the broker

It’s also important to understand the role of the broker in all this. Most lenders don’t want to have to change the terms of the deals down the line; if and when it occurs, it’s because something about the case itself has changed.

Brokers can play a crucial part in reducing the chances of this happening by ensuring they have all of the relevant details from the client at the very outset.

Doing so means it is unlikely any unpleasant surprises will emerge down the line, as all parties are entering into proceedings on a completely informed basis. If brokers suspect there may be certain aspects to a case which could prove problematic down the line, and lead to the changing of terms, then acting on those concerns at the earliest opportunity is vital.

Who do you trust?

Brokers have a long memory - speak to most and they will be able to regale you with the details of nightmare deals, the ones where everything seemed to go wrong and led to sleepless nights.

They will equally well remember the times they have felt slighted by lenders when things have gone awry because the goalposts seemed to have moved. That experience will inevitably mean brokers think twice about using the lender again in the future.

The counter to that is that lenders who are able to deliver certainty at the start of a case, and who can live up to their promises, tend to win the long-term favour of advisers. They recognise the value in lenders who combine competitive pricing with a reliable and consistent process, without those nasty shocks down the line.

In the end, brokers must ask themselves who they trust - the lender that consistently does the due diligence at the beginning and is true to their word, or those with a more inconsistent reputation? It’s over to you.

Read the full article on Financial Reporter.

For more information or to get in touch with the team, please contact us: 

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