Article 16 in a series of 40 articles on P2P, property and CrowdProperty. 

The last post explained how we charge borrowers and how we put transparency at the core to a long-term relationship. Following on from this, we uncover some of the hidden charges that less transparent lenders may hit you with. Next, we’ll explain why institutional lenders benefit both borrowers and retail lenders.

 

When looking for a good – or at least passable – restaurant, avoid the tourist traps. They’re not looking for repeat business, just regular turnover. By the time you’ve discovered the chef’s recommendation is indistinguishable from the scrapings at the bottom of a budgie cage, it’s too late, and they’re already looking for the next gastronomic victim. You want to eat at a place that’s looking for repeat custom, and one that wants you to leave the table delighted.

It’s pretty much the same with property lenders. Many work on the assumption that there’s always a new borrower after this one, so they don’t have to work for repeat business. Ethically, it’s a questionable way to do business, but it’s perfectly legal. Property project lending for investment purposes is unregulated – there’s no one ensuring the playing field is fair – so it’s buyer beware. So be aware. We’ve found some remarkable things out from borrowers we work with who have come to us frustrated by the real costs of borrowing from others.

 

Add-ons

To employ another creaky metaphor, borrowing from some platforms can be like booking a budget airline flight. Yes, the headline rate is really attractive. But then, oh dear… a few quid extra to board early, to reserve a seat, to get your baggage in the hold. Then you’ve got to factor in the cost of travel to said airline’s airport, which is in the middle of nowhere (trains or petrol and parking – kerching!). God forbid that you’ve forgotten to print your boarding pass or that your small carry-on bag isn’t quite small enough, because that’ll be another chunk out of your wallet.

By the time you’ve paid for everything, you might as well have hired a golden palanquin carried by the members of U2 to get you to your destination.

The lesson here is always read the small print. It’s easy just to accept terms as ‘typical’ but as a borrower of a hefty sum of money, you need to understand every term, breakout a spreadsheet and properly analyse your funding offer. Failure to do so may not only be costly – it could be the difference between sink and swim for your project.

Examples of charges that we’ve seen (which may not be exhaustive) that can hit the unwary borrower include:

  • Arrangement fee quote as per annum (so 2% pa is actually 3% for an 18-month project)
  • Exit fees that are a percentage of GDV (that’s half as much again for a good project)
  • Interest charged quarterly or monthly with a full period always charged even if paid just a few days into the period
  • Monitoring surveying costs that are pretty much covering the surveyor’s salary (if they’re made clear at all)
  • Loan ‘management’ fees (isn’t that the lender’s job?)
  • Late interest charges of 2%, 3%, even 4% (we see a lot of applications from projects running a little late that need refinancing to finish the project and then exit as a result of this)
  • Penalty fees in addition to these late interest charges
  • Lender’s broker fee recharge
  • Charging an unutilised fee on the whole facility balance
  • The sheer number of fees that are charged for: setup fee (in additional to an arrangement fee), funds transfer fees (including on drawdowns), etc etc etc
  • Margins taken on legal and monitoring surveyor fees

 

Broke from brokers

And don’t forget that you’re paying a broker fee directly too, which is usually 1% of the facility payable by you directly to them, as all other lenders need brokers to win business. But the lender also pays the broker – some even recharge the fee they pay to brokers into the bargain (using the term ‘bargain’ advisedly).

Uniquely, we do not. We work with you directly and analyse your project to create a financing package that is tailored to your needs. Each business situation is different and we build the product to suit not shoe-horning your needs into a product.

All those hidden charges listed above are examples of a transactional way to do business, milking that one contract. They are so typical of many short-sighted, and ultimately doomed businesses. We at CrowdProperty, on the other hand, are in this for the long haul: our business is being built on long-term relationships with borrowers. We’ll prove that we’re on your side through thick and thin – even if a project has problems, as we want to be your funding partner for life.


06 Sep 2019

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