2011 - The evolution of bridging

2011 - The evolution of bridging


This year has had many highlights within the bridging and commercial sectors, so B&C delved in to find out what the year highlights have been for some of the industry experts and also find out what they think will crop up in 2012.

Colin Sanders, Chief Executive Officer at Omni Capital, told B&C his highlights. He said: “I think we can all agree that bridging has continued to thrive in 2011. It may well be the case that the sector is punching above its weight, but that’s no reason to diminish the successes of the past year.

“The highlights for me have been the continued expansion of bridging with new lenders bringing new products, fresh ideas and guaranteed funding to the market. This has been supplemented by a wave of broker entrants bringing with them the experiences of life in a fully-regulated, post credit-crunch environment.

“I was also hugely impressed by the impact of bridging at London’s Expo – arguably, the industry’s premier event and showcase. The interest in bridging and short-term products was evident to all who were there, as was the acknowledgement that we face challenges, as well as opportunities, ahead.

“To help meet these challenges, I expect there to be greater demands on the time and expertise of our trade bodies. Some are clearly more developed than others, but I’m encouraged by the recent changes I’ve seen, and by the clear expression of support from the industry for closer co-operation.”

Lucy Hodge, Director at Vantage Finance, pointed out how: “We have seen an influx of new lenders in the short term space, and also existing term lenders moving into short term lending which has created a lot of hype in the market, and as a result there has been a real focus on the subject in industry press, mainstream press, within the FSA, Trade bodies etc. There have not been any drastic changes to the regulation of certain bridging products although regulation has been a key topic with proposed changes to the regulation of second charge lending and buy to let too. The AOBP has made an impact this year and grown its membership beyond expectations, and has really started to gain some traction with seminars and networking functions for brokers and lenders, the release of the short term lending booklet, the work carried out with the FSA and the publicising of lender statistics with the monthly newsletter.

“Fraud has always been a very critical subject in the mortgage industry as a whole, and toward the latter part of this year awareness has been raised with regard to fraud specifically in the short term sector. This will continue be a challenge for the industry to prove that lenders and brokers are not allowing themselves to be easy targets for fraud, but not a challenge that I think will get the better of the industry.”

Stewart Barnes, Director at Portman Finance, believes: “The NACFB Expo at the NEC in June was a highlight this year. It was great to see it so busy and there was a real buzz. We think that both the AOBP and the NACFB are working extremely hard in the area of regulation, especially the proposed regulation of second charge lending, which would have an enormous adverse impact on a lot of lenders.”

Alan Cleary, Managing Director at Precise, told us: “The highlights from my perspective is the increased funding that has and is becoming available to the bridging market. The macroeconomics point to increased PRS activity, which will in turn increase the need for bridging and short term loans. Also, more bridging lenders becoming regulated is a major plus point and should benefit customers in the long run.”

Richard Deacon, Sales & Marketing Director at Masthaven, said his highlights of 2011 “are Masthaven gaining FSA regulation and getting serious investment from the William Pears Group. It has been a good year overall with the industry being better known and seemingly not now a lender of last resort.”

Jonathan Newman, Senior Partner at Brightstone Law LLP and Chairman of the AOBP, thinks bridgers have stepped to the fore, where banks and high street funders have continued to hold back. “This, together with the experience and commerciality of these niche lenders, has resulted in significant growth in the sector. This has resulted in increased competition, and more favourable pricing for the consumer.

“Lenders have taken on board regulation, and responsible lending initiatives. Processes and documentation have improved considerably from the early days of bridging, and this in turn, has improved transparency in the transactions.

“It is very rare indeed to face a consumer complaint that they did not understand the transaction or their obligations, or the true cost."

James Bloom, CEO of Regentsmead, said: “For us there have been many highlights, we found the NACFB Expo to be particularly buoyant and very worthwhile. However the main highlight has been the massive improvement in confidence in activity and sentiment in what is very difficult times.”

Steven Nicholas, Chief Executive of Tiuta plc, gave us his views on how bridging has evolved this year and what to look out for next year:

“To my mind there are two sectors that been strong performers this year, and they are bridging and buy-to-let.  If we’re looking for two industry success stories in 2011 then these are the two and we should be proud of that.  2011 has certainly been an interesting year for bridging – clearly it appears to be an attractive proposition for many would-be lenders as the number of new entrants to the sector over the last twelve months will testify.  Being one of what I would call the founding fathers of bridging, we of course welcome competition to the sector, however at the same time we want to see transparency of proposition.  There appears to be something of a smoke and mirrors approach adopted by some and our belief is that this does no-one any benefit, particularly when it comes to product availability.

“From a business perspective clearly our own decision to concentrate on bridging lending this year was notable.  Already, this decision is bringing dividends and our lending and redemption levels would prove that.  We restructured the business and another highlight is the team we have assembled and the dedication, expertise and hard work they give to Tiuta.  Our year has ended strongly and our recent announcement regarding the £30m funding line we have available for December and January, plus our new relationship with the Baltic International Bank is a sign that we intend to start 2012 as we are ending 2011.

“There are always challenges to overcome in any business and clearly there are a number that could be coming over the horizon from a regulatory point of view.  The MMR will have a major influence no doubt as will the still vague EU Mortgage Directive.  Bridging lending and the advice that advisers provide in this area is under the microscope.  That is not going to change and therefore the sector should embrace high standards and be ultra-aware of the responsibilities that come with bridging.  Overall, there is much to be positive about.  Demand for bridging loans is unlikely to be diminished, indeed with the approach adopted by the main, high-street banks it appears that demand will continue to rise.   Whether there is sufficient funding available to meet this demand is another question entirely.  2012 however is likely to be another landmark year for the sector and we certainly intend to play a full part in its on-going development.”

Stewart Barnes warned: “The biggest challenge for 2012 will be if second charge lending and BTL lending is regulated. Regulation could potentially remove a number of the short term lenders from the market because the process of becoming regulated is so onerous and expensive.

“We believe that there is a place for regulation, but second charge lending is not it. As long as we continue to lend sensibly, commercial brokers play their role in placing the borrower with the right lender and the borrowers ensure that they understand what they are doing, then regulation should not be required.”

The Mortgage Market Review (MMR) is due to be published in March 2012. Launched after the sub-prime crisis in 2009, the MMR intended to restore confidence in the mortgage lending market.

2012 also sees the FSA plan to overhaul the mortgage market. Lynda Blackwell, Manager of Mortgage Policy at the FSA, said: “We have also finalised our proposals for an Approved Persons regime for the mortgage market, which will be introduced in 2012/2013. That will help raise standards across the lending industry generally.

Jonathan Newman believes the key challenges for lenders in 2012 are fraud and valuation. “Fraud is on the increase. In terms of valuation, the property market is hard to read.

“In addition to this increased regulation adds additional administration and overhead burden too many lenders at a time, when pricing is an issue. It is hoped that industry representative bodies such as the AOBP can get their message across to decision makers ahead of the media who often write with little day to day knowledge of how the sector works, and very little experience.”

Colin Sanders believes funding will be a key challenge in 2012. He stated: “For some lenders, funding may be an issue as providers choose either to hoard cash or divert it to other lucrative streams. But I don’t believe this will be of sufficient scale to upset the momentum of the past year.

“Regulatory issues will continue to feature large on the agenda but not necessarily in any conclusive way. The local regulator, the FSA, faces significant changes in both its remit and composition and may find bridging a distraction too far.  Elsewhere, the EU authorities will move at their usual glacial speed.

“But the mood is clearly for more regulation, not less. The sector can also expect more intense critical scrutiny from an alert media. Treating customers fairly will be a prime point of focus. Lenders and brokers alike would therefore be wise to prepare, adapt and behave accordingly.

“Fraud has the potential to become a problem if allowed to take root, but the solution is in our own hands. Lenders must be beyond reproach by deploying robust due diligence policies and procedures. Nothing less than a zero-tolerance attitude towards recalcitrant brokers (and valuers and solicitors) will do. There also needs to be far more effective cross-industry co-operation.”

Finally, According to the FSA, the impending regulation of the European Commission’s mortgage directive could be adopted by the middle of next year and implemented across member states in the next two years.

During 2011 a much higher number of borrowers than expected were able to repay their mortgage debt which is set to continue throughout 2012.

The FSA is likely to introduce regulation for the entire mortgage market which may further increase the cost of borrowing and severely affect first time buyers – last quarter of 2011 saw the lowest number of first time buyer entering the market.

The introduction of 'approved person' will effectively function like a master broker on behalf of mortgage lenders, raising the standards of advice issued to borrowers.

An approved person is an individual who has been approved by the FSA to perform one or more 'controlled functions' on behalf of an authorised firm.

By Jason McGee-Abe

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