Regulated bridging 'likely' to surpass unregulated bridging

It is likely that regulated bridging will overtake unregulated bridging in the future, according to a specialist conveyancing firm.

The latest Bridging Trends report by mtf found that 56.3% of bridging lending was unregulated with 43.7% regulated during the first quarter of 2018.

However, the report showed that regulated bridging transactions had increased for the first time since Q1 2017.

“I can understand why the majority of brokers are happy to work with unregulated lenders as a lot of the business will be unregulated – [for example] refurbishment, auction purchases for buy-to-let [and] development site purchases,” said Robert Collins, director at Sirius Property Finance.

“Equally, I think the rise in regulated business is a consequence of bridging rates being squeezed downwards and becoming more attractive to residential borrowers looking for traditional chain break finance.

“I think you will see more lenders look to move into this area as it is usually relatively low risk compared to the more profit-minded transaction, where you are working on risk and reward.”

reg v unreg

Will regulated overtake unregulated?

“I believe that the transactional ratio between regulated and unregulated bridging is already more heavily weighted in favour of regulated lending, but the actual quantum of value per transaction still favours that of unregulated lending,” said Steve Brennan, director of credit at ActivTrades. 

“As the scale of economy tightens and with the growth within the housing market over the last eight years, it is likely the reliance on releasing cash from people’s own homes will continue to increase.”

Ian Norman, partner at Lightfoots Solicitors, added: “Since the introduction of the Mortgage Credit Directive and the complexity it has brought to the regulatory perimeter – coupled with the significant growth in the sector – I think it is likely that regulated bridging will surpass unregulated bridging in the future.  

“Also, as lenders embrace the increased regulation, many will transact deals as if they were regulated even if they are not, with more emphasis on the FCA’s TCF principles.”

Jonathan Sealey, CEO at Hope Capital, felt that regulated bridging lending would only overtake unregulated lending if the FCA chose to regulate more elements of it.

“At the moment, the FCA actively discourages firms from becoming regulated if they do not carry out lending on residential properties or other types of lending where the borrower is deemed to be vulnerable.

“Ultimately, I’m sure that the trend is for more lending to be regulated, which may well tip the balance, although I expect that to be some years away as the FCA has its hands full dealing with the implications of Brexit over the next few years.”

Brian Rubins, executive chairman at Alternative Bridging Corporation, added: “The reduced levels of activity in the owner-occupier market – due to lack of stock – and in the buy-to-let field – due to legislation – makes it unlikely there will be significant growth in regulated loans.”

Chris Whitney, head of specialist lending at Enness, predicted that many unregulated loans weren’t being recorded.

“I totally understand and expect the size of the regulated specialist lending market to grow, as many lenders outside of this space adopt even greater restrictive lending practices. 

“However, if we look at all the different sectors within the unregulated space, and the [number] of lenders servicing that specific market, I think it must be the biggest.”


What impact could more regulated bridging lending have on the market? 

“Any form of regulated activity is a good thing for the consumer and business in general,” said Keith Aldridge, managing director at Amicus Property Finance.

Meanwhile, Chris Fairfax, managing director at Positive Lending, added: “A significant increase in [the ratio] of regulated to unregulated lending may tempt unregulated lenders to consider becoming authorised for [the] provision of regulated mortgage contracts. 

“It could also potentially lead to the unregulated market seeing lenders withdraw from the market.”

Liz Syms, CEO at Connect for Intermediaries, felt that lenders would only become regulated in order to expand their product offering.

“Whether they are regulated or not is not necessarily relevant to the broker, it’s only relevant to the products they can offer.”

Chris Gardner, CIO and head of risk and compliance at Amicus Finance, concluded: “I believe the longer-term question is whether or not the scope of regulation will change, bringing more loans into the ‘regulated’ category, in particular those made to SMEs. 

“We can already see evidence of this; for example, the FCA is consulting on extending access to the Financial Ombudsman Service to a wider range of SMEs.” 

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