Why fish-hooking is damaging our industry
Over the last five years I’ve watched the IFISA market from the sidelines. Last year, as a frustrated supporter, I decided to finally pull on my kit and do something about it by launching the Fluid Bond.
I decided to get involved to offer something different to the market: we wanted to offer a product with the aim of meeting the needs of both investors and borrowers. Fluid Bond offers a 6% fixed interest rate to investors with the option for their investments to be held in an IFISA wrapper, the Fluid ISA. Their investments are ultimately used to provide asset-backed bridging loans to businesses in need of short-term capital, via Fluid Trust. The fact that the ultimate loans are asset backed does not guarantee a return for bond holders.
Typically, the bridging loans are used to finance exciting UK property projects. Increasingly often, borrowers are seeking – a different kind of finance – peer-to-peer (P2P) lending because the traditional avenue of top tier banks hasn’t worked for them.
Borrowers may choose P2P over a traditional bank for one of many reasons, including the interest rate not meeting their requirements, the speed in which they could access finance not fitting in with the development timescales, or the burden of the bank’s administration requirement.
Time is always a critical factor for developments and lenders often need access to finance in a short timescale. This is sometimes exploited by unscrupulous lenders with a practice which has been coined ‘fish-hooking’.
Fish-hooking is the method of ‘hooking’ borrowers in with advertisements of an attractive interest rate on the bridging loan, only to revaluate the percentage in the final offer – sometimes weeks down the line – once all the valuations, administration and legal paperwork have been carried out. Borrowers will often decide to take the hit and carry out the loan at the higher rate because of the time and legal investments already made during the loan application process.
Ultimately, these false promises are damaging our industry by eroding the trust between the borrowers and lenders. However, borrowers also need to play their part; both parties need to become more transparent with valuations, development plans and previous experience to raise standards in the industry and cut out this malpractice.
In the bridging industry, lenders have to strike a balance between being speedy and prudent. When you factor in the appraisal of the valuations, and credibility of the project and borrower, typically a deal can be done in two to four weeks. If everything is in place beforehand, present and correct, even one week is possible.
Bridging loans play a pivotal role in our economy and can be used for a myriad of purposes, be it financing property transactions, helping with business cashflow or acquisition of new business equipment. These alternative sources of finance will only continue to thrive if both the lender and borrower are more transparent throughout the lending process.