Industry reacts to FSA speech on bridging

Industry reacts to FSA speech on bridging


The FSA managed to ruffle a few feathers amongst the bridging community with their keynote speech at last week’s Mortgage Business Expo. In the penultimate presentation of the event, Sheila Nicholl, Director of Conduct Policy at the FSA, discussed the dangers of bridging and buy-to-let products being put forward to unsuitable clients by brokers as ‘creative’ funding solutions in a difficult financial market.

Most within the industry will agree that any untoward activity by brokers is damaging to the reputation of the industry and as such are keen to have such practices stamped out – however, whether FSA regulation can help remains a topic of debate.

As Terry Markham, Managing Director of the Funding Operation, explains, “In any element of financial services there will always be rogue traders who will seek to utilise available products to suit their own ends. It can prove very damaging, for both brokers and short term lenders. Those brokers that may, for example, seek to disguise FSA regulated cases as buy to let can cause untold damage; for instance, if a case cannot obtain an exit and the lender seeks possession only to find the applicants actually living in the ‘buy-to-let’ security. In this circumstance, introducers really need to understand that this is also going to backfire on them.”

But according to Andrew Bloom, Managing Director at Masthaven, the industry has come a long way in its efforts to oust such bad practices from the market. “Like any industry the bridging market has a few bad apples, but over the last 20 years the industry as a whole has taken a step up and become far more professional.”

This appears to be a view supported by Duncan Kreeger, Chairman of West One Loans, who said, “The industry has come on leaps and bounds, especially over the last five years. It has worked hard to gain the respect of the wider lending market.”

However, as Andrew Bloom states, the risk remains that “a small minority can create a negative reputation for the whole industry”. The debate arises around the question of whether or not FSA regulation is the answer.

Andrew Bloom continued, “Regulation is one answer but certainly not the only solution. Another option is for the bridging lenders to act responsibly; as an industry we must ensure that we only accept an applicant if it makes commercial sense and the borrower fully understands the risks/rewards of taking out a bridging loan.

“Masthaven Finance Ltd is FSA regulated, hence we decided that it helps. Wider regulation will greatly help to deal with this problem but will also make life harder, especially for the smaller bridging companies and the high quality non-regulated brokers.”

Duncan Kreeger, Chairman of West One Loans, agrees that the issue is one to be addressed by the bridging industry itself, particularly the trade bodies the Association of Short Term Lenders (astl) and the Association of Bridging Professionals (AOBP). “There are rogues out there, and we’d like to see the industry come down like a ton of bricks on these types. 

“We want the AOBP and astl to help raise standards across the board. Too many brokers don’t have a proper grasp of what bridging is, and the procedures involved. Industry bodies need to help educate them so they can offer better loans. The AOBP broker guide has already gone some way to doing this. It will help them provide a better service to borrowers, and help borrowers to fully understand the risks associated with bridging, but more needs to be done.”

In terms of whether wider FSA regulation would help or hinder the market, Duncan Kreeger believes that the regulators need to find the right balance between protecting the consumer to ensure bridging remains appealing to borrowers and investors. “Regulation is important in creating an industry culture that protects the consumer. But wider regulation that affects business transactions, if too burdensome, will kill the market. Speed is of the essence and too much regulation will slow deals down, and make bridging less attractive to professional investors. Commercial bridging is entrepreneurial and dynamic and it would be wrong to drown it in a sea of red tape.”

European regulation is on people’s radars and Terry Markham doesn’t think bridging will remain exempt from the EU Directive, purely because those seeking regulation of the market “do not really understand the market.” He believes, “regulation of the buy-to-let market will place this sector of the market under much more pressure than it is now. It is widely recognised that the buy-to-let market is currently the only growing sector of the property market and as such this will be ringing alarm bells at the Regulators, who will seek to interfere where it will only hinder borrowers.”

The EU Directive on mortgages will have wide potential implications for consumers and lenders in the UK. Sheila Nicholl said last week that the FSA would be concerned if niche lending, for markets such as bridging and buy-to-let, were to be governed by broad regulation designed for mainstream products.

Terry Markham thinks that “whilst it is important to ensure borrowers are protected, it is equally important for both brokers and lenders to also be protected. This market has managed to grow and flourish without the need for external regulation and unless somebody can come up with a convincing reason why it should be regulated then if it is not broken it does not need mending.”

Andrew Bloom hopes “someone will see sense and there will be a split between short term lending and longer term mortgages.”

The FSA representative also explained that the Mortgage Market Review is in the process of its final analysis before it will go through a long and intensive consultation process. Regulation won’t come into effect overnight but the voice amongst the industry is one of pessimism.

To read Sheila Nicholl's speech in full, please click here


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    Keith Forster

    I strongly urge the industry to do all it can to keep the FSA out of our business whilst putting in place processes to rid this Market of the unethical broker. The FSA has itself failed to manage the life, pensions and mortgage market aka equitable life / northern rock and it's agents whom visit UFA's are routinely found wanting. To give this, at times, inept organisation more powers especially in this market beggars belief. Their role is to regulate not 'make a play' for even more responsibility at a time when the government is supposed to be reducing the burden of red tape AND bringing in cut-backs to reduce the number of people employed in the private sector. Don't say I didn't warn you.

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