Broker vs Direct - Is There a Preferred Option for Property Finance and Insurance?

Posted by The Landsite on 21st November 2022 -

Whether you are looking for property development finance or building insurance, the real estate sector is full of individuals and companies helping businesses and property professionals get access to the best products and support. Generally, these are split in to two types of entities: brokers and direct lenders. In this article we look at the differences of dealing with each type of provider.

Insurance and specifically building warranties, has always been an area where the risk has been assessed with more emphasis on the property to be insured than the individual applicant. On the other hand, borrowing money today is harder and more complex that it was say 10 years ago, with lenders being more risk averse than ever as they examine the risks associated with each applicant, as well as the property itself.

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Loan applications to invest in, or for development of, a property now require more detail, scrutinising all aspects of your background, finances, and projections for the location you want to buy or develop. This should be regarded as a positive as it works to ensure lenders are more accountable. Nevertheless, it also makes applications much more thorough and the individual completing the application needs to be meticulous with the information provided. If the information is not accurate, the lender will reject the application. 

A finance broker will use their experience to safeguard your application process and will submit your application to selected lenders in their network – those that are appropriate for, and specialise in, the project you have presented.

Additionally, the role of the finance broker is to offer you an option of various financial solutions, whereas going direct to a lender means you are presented with only the products and services provided by that lender.  A bank is mandated to offer you advice on the products that they list, as opposed to the financial products available in the wider market.

A broker’s access to multiple lenders gives you a good idea of how various lenders will qualify your application. This can give you more flexibility, especially if your circumstances mean that you don’t fit into a category typically recognised by lenders.

On the other hand, it is recognised that direct lenders can make funding decisions quickly since they control their own lending criteria. This allows them greater control over which customers get the funds that they’re seeking.

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When looking for property insurance and building warranties - a broker works with several insurance partners to find the specific cover that’s right for you. They will assess your business needs and make suggestions that serve your interests. Additionally, since your insurance broker will have relationships with several underwriters, they can negotiate competitive rates and discounts. 

Many online insurance comparisons sites have surfaced over the past 15 years or more. These are, for the most part, focused on products and solutions for the retail consumer market – motor, holiday, home insurance etc - and it is rare to find comparisons sites that provide solutions for the much more specific and professional needs of the real estate development and construction sector, where several variables arise on the site’s design and eventual use of the development.

In the case of building warranties, which are occasionally referred to as latent defects insurance, both the insured and insurer’s requirements are even more constrained and specific. A building warranty is a comprehensive insurance policy that is provided by a developer to the owner/buyer. It offers peace of mind that the building has been constructed to a standard set by the warranty provider, in this case an insurance provider or underwriter. Although it is common for building warranties to be used in the new build residential market to satisfy mortgage providers, there is also a huge demand from the professional commercial sector to have cover as part of any borrowing lines. Given these intricacies it is vital for developers and builders to work with a reputable broker who can guide them through the best products and cover across the market.

"All projects and developers are different, and any insurer has a varying risk appetite, so by using a broker who works with a number of insurers is variably the best option for clients to find a preferred premium rate", says Andrew Dyson, CEO from Build Warranty Insurance Services.

 

Source information, guides and financial services  

Source information, guides and insurance and build warranty services 

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