2012: What's to come?

2012: What's to come?


Last year saw many highlights for the sector, ranging from mainstream press coverage, higher levels of gross lending and competition and seeing bridging evolve further as a viable financial solution in its own right, but Bridging & Commercial wanted to indicate some of the things people should look out for over the course of the year as we enter into 2012.

Last year was certainly an interesting year for bridging – clearly it appeared 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. The impact in bridging was evident at the Mortgage Business Expo in November, and the interest in bridging and short-term products was evident to all.

Steven Nicholas, Chief Executive of Tiuta plc, welcomed this competition to the bridging sector; however at the same time he wants 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.”

Although it is not yet compulsory for bridging lenders, there is speculation that FSA regulation could become mandatory in the future; as such, some lenders are choosing to go through the process of bringing their bridging procedures up to FSA standards now, in order to avoid the bottle neck that could occur further down the line as lenders rush to become regulated before the deadline.

B&C overheard that Precise Mortgages are on track and next in line to offer FSA regulated bridging products by mid-January. We anticipate an official announcement about it in the very near future – so watch this space.

Alan Cleary, Managing Director at Precise, has previously stated: “More bridging lenders becoming regulated is a major plus point and should benefit customers in the long run.”

Shawbrook Bank has launched into the short-term lending market and it will be interesting to see how they develop. Commenting on the launch, Stephen Johnson, New Business Director at Shawbrook Bank, said: “We see this as a natural extension of our current offering to complement the needs of our existing client base, who already require the use of our longer term products. Our short term offering will primarily be available to established property professionals with a strong personal net-worth and an A1 credit history.”

He added: “We have an existing panel of brokers in place to deal with the distribution of this product.”

Tiuta plc kick the year off on a sound footing by securing a £30 million funding line which is for use throughout December and January, and they have also announced a new funding relationship with the Baltic International Bank.

There are a number of challenges for 2012 due to the growth of the sector. There will be higher expectation and greater demands on the time, expertise and co-operation of the trade bodies.

There will be much focus and scrutiny this year by the FSA with regard to all involved in the bridging sector - from lenders and brokers to trade bodies.

Many within the sector believe that the trade bodies are doing sterling work. Stewart Barnes, Director at Portman Finance, said: “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.”

From a regulatory point of view there are a number of challenges coming over the horizon. Regulation will continue to be a key topic with proposed changes to the regulation of second charge lending and buy-to-let.

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.

The FSA will seek to redefine a bridging loan as a regulated mortgage contract with a term of 12 months or less and will ban speculative bridging loans and those with a term of more than 12 months, according to its final consultation paper of the Mortgage Market Review. The regulator says lenders should not accept speculative methods of repayment for bridging loans.

The regulator also revealed that it has a number of concerns about the bridging market and to seek answers will be requiring brokers to determine why a mainstream mortgage was not suitable for the customer as part of the bridging sales process, and forcing lenders to reassess customers’ ability to repay their bridging loan every time its term is extended.

Steven Nicholas believes: “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.”

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.”

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.

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.

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.”

Fraud will always threaten the reputation of the industry and despite the majority of the industry and trade bodies working to tackle this, there will always be a minority of sharks out there. The industry will therefore need to continue to prove that lenders and brokers are not allowing themselves to be easy targets for fraud.

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.”

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.

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. According to a survey conducted by Precise Mortgages, 82 per cent of brokers believe the short-term lending market will grow in 2012.

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 B&C will be there every step of the way to cover its on-going development.

We wish you all the best and success for your businesses over what will prove to be a great but bumpy ride!!!

By Jason McGee-Abe

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