Regulated Bridging - Brokers fears over advised sales

Regulated Bridging - Brokers fears over advised sales




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Terry Markham, Managing Director at The Funding Operation (TFO), explores FSA regulation and the issues faced by both lenders and brokers alike...

It is widely know by all short term lenders that they must achieve FSA approval if they want to ensure their long-term survival. Many lenders have already achieved approval and some are only just beginning the arduous task of implementing the required systems to obtain the required permissions.

Therefore, all short term lenders have an eye on the future and are shaping their businesses and business models to ensure they are competitive, whilst remaining compliant. I am sure, however, that they would not be treading this path if they did not believe that the FSA will be responsible for all types of lending in the future.

So, whilst the majority of lenders are gearing up because they have to, a few lenders have seen this as an opportunity and are offering FSA regulated loans on applicants’ principle residences.

It could be said that this gives them a USP over their competitors, but who is ultimately responsible for the advice given to the applicant?

The truth is, it is the FSA regulated broker. Like any other type of regulated mortgage contract, the broker must demonstrate on their file that they have searched the market, advised the applicant on the various deals available and carefully documented why they have recommended the deal.

But when is it right to offer regulated short term lending to somebody?

Many may say that a broker must be crazy to be putting “their foot in a bear trap” as these are very much uncharted waters. However, as those lenders that offer regulated bridging loans already know, there are some positive occasions when this type of lending is prudent.

For example, we had a recent case at TFO which clearly demonstrated the need for this type of loan. Whilst we did not give the advice, we agreed the deal on behalf of the broker with one of our lending partners.

A retired couple who had decided to spend the rest of their days living much closer to where the rest of their family were based had been searching for over a year for a property in a specific area. Whilst they were searching they also marketed their existing property for sale, achieving a price close to what they wanted.

When the ideal property came up they were delighted. All systems were go, and they proceeded with the purchase. Unfortunately, at the last moment their purchaser informed them that they were going to be delayed due to a problem in the chain. This meant they stood a real chance of losing the dream property they wanted to buy.

They took the decision to take a bridging loan on their existing property, which paved the way for them to complete on their new purchase. Four months later their original sale completed and the short term loan was repaid.

When you look at the factors in this example, I am sure that most brokers would think more than twice about advising these applicants to proceed. The facts were, the couple were retired, both being in excess of 65 years old. As such they were in receipt of the husband’s occupational pension and also their State pensions. This was not a case of “lending into retirement”, this was a case of lending whilst already in retirement.

It is a fine line whereby it would be easy to criticise the advice given, especially if it took a good while longer to complete the sale of their existing property. However, if this type of lending was not available the couple would have missed out, not only on their dream house but also by not moving closer to their family who could offer them support in their advancing years.

What do you think? I would be interested to receive comments from those regulated brokers out there as to how they would have seen this situation and whether or not they would have advised this sale to proceed.

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