Top lenders jump on the regulation bandwagon

Top lenders jump on the regulation bandwagon




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The European Commission has proposed a directive on mortgage lending that looks set to burden the UK property market with yet another layer of regulation.

The directive, which is aimed at all loans on residential property to consumers not acting in trade, business, or profession, may also cast its shadow over the buy-to let sector, which could cause huge shake-ups for the entire non-commercial short term lending world.
Andrew Bloom, Managing Director of Masthaven, said: “If buy-to-let becomes regulated then so will bridging loans that are secured against non owner occupied residential properties.
“In my view, all loans made to individuals against non commercial properties will sooner or later become FSA regulated.”
At this stage, few predict that the entire bridging world will be ‘forced’ into becoming regulated, as loans on commercial properties are unlikely to be treated in the same way as those to individuals.
Jonathan Samuels, CEO of Dragonfly Property Finance, said: “There is a degree of inevitability around loans to individuals being regulated but I think loans to commercial entities are likely to remain unregulated. When regulation does come it's unlikely to be black and white but rather somewhere in between.”
Another reason why the government may choose to evade blanket regulation which covers all sectors is because of the investment that would be lost in doing so.
Mark Abrahams, CEO of West One Loans, said: “An increasing component of the bridging market is now being funded by private finance. If increased regulation ultimately leads to a decrease in the IRR for investors they will look for other opportunities.
“This could lead to an overall contraction of the bridging market, which the regulatory and governing bodies in this difficult financial environment can ill afford.”
Mr Abrahams also explained that the bespoke nature and the speed of bridging could be stifled by the red tape of regulation.
Nevertheless, the market for regulated lending has evolved since the recession struck, and now presents bridging lenders with a much greater scope of opportunities than it did previously.
Ray Cohen, compliance expert and MD of Jackson Cohen, said: “Over the last few years, the ‘quality’ of regulated business has improved as there are greater numbers of borrowers who are credit-worthy but simply unable to obtain funding from traditional lenders.
“In order for a bridging lender to take advantage of these non-commercial, yet often highly-profitable short term lending opportunities, they would have to be regulated.”
Having recently gained FSA regulated status, Andrew Bloom of Masthaven explained: “Becoming FSA regulated is now significantly harder than probably any other time in the history of the FSA.
“This has led to many bridging companies not applying. Consequently, there is less competition in the FSA regulated bridging loan market and we have, without a doubt, increased the volumes of deals we complete by becoming regulated.”
Yet many lenders argue that opting out of the regulated lending arena has done little to limit their business opportunities thus far.
Liz Locke, Development Director of Omni Capital, said:”We recognise that there are enquiries we are missing out on by not being regulated. However, Omni decided to target the larger non-regulated part of the market which is more entrepreneurial and indeed driven by 'property people'. In doing so we feel Omni can add real value with regards to speed, vision and quality of service, demonstrating a commitment to the London property market.”
Jonathan Samuels added: “I do not believe we are missing out on potential business by not being regulated but at the same time acknowledge that there is more we can do to develop our business and FSA-regulated loans are certainly an integral part of this.”
All in all, despite recent negative press over the effectiveness of the FSA, not least Gordon Brown’s keynote speech this weekend in New Hampshire, in which he apologized for making a ‘big mistake’ in setting up the FSA, most bridging lenders acknowledge that the future involves regulation.
Liz Locke explained that Omni Capital have an experienced management team, who are well equipped to consider regulation ‘when the time is right’.
West One Loans also admitted to be ‘carefully considering all options with regards to regulation’, so as to ensure they remain committed to providing a dedicated bridging service for both borrowers and investors.
Jonathan Samuels, and his team at Dragonfly Property Finance, have gone one step further.
“We are currently in discussions with the FSA and all the feedback we have had so far has been positive,” said Jonathan.
 
It seems that the bridging world is making its own way towards regulation, without any ‘push’ from the government or from the FSA. Feedback from the CEOs and Directors of various short term lending companies confirms the sentiment and suggests that in the next few years, most bridging lenders will be jumping on the regulation bandwagon.
By Katie-Jill Rowland

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