Exclusive: Trade bodies voice MMR concerns

Exclusive: Trade bodies voice MMR concerns




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With only one day left for the industry to provide feedback on the FSA’s latest Mortgage Market Review (MMR) proposals, B&C got in touch with the heads of the trade bodies in the short-term industry to get an exclusive glimpse at what is being submitted to the FSA…

National Association of Commercial Finance Brokers (NACFB)

Adam Tyler, Chief Executive of the

NACFB

, informed us: “The NACFB had its final meeting with the FSA on the 20th March and submitted the NACFB response the following day, all 7,000 words. The content of our meetings also extend a long way outside the current MMR – the recent round included buy-to-let and second-charge lending.

“As an Association, providing self-regulation to the sector, we are very pleased with the outcome of our discussions and feel appreciated for the work that we do across all aspects of Commercial Finance. The provision of self-regulation by the NACFB is an important part of the whole industry and will be needed for many years to come. It is the strength of our position that provides us with the necessary platform for the next round of discussions with the Department of Business Innovation and Skills in support of some of the findings of the Breedon Taskforce, aimed at Boosting Finance Options for Business.”

To give us a flavour of the NACFB’s stance on the MMR proposals on bridging finance, we were provided with a small extract of what they have submitted:

The definition needs to be tighter to define a borrower’s principal domestic residence in which they are either currently resident (in case of refinance) or will be resident in the immediate aftermath of this loan (in case of purchase).

Alternatively, you should exclude all other forms of short term finance such as:

Ø  Where a residential dwelling is being acquired by the borrower for refurbishment, redevelopment or other commercial gain

Ø  Where the borrower acquires a property that contains a residential element but does not propose to occupy that part in the course of this loan

Ø  Where a property or parcel of land is acquired for other commercial purpose

 

In 10.47 where the report proposes to define a bridging loan as a regulated mortgage contract with a term of 12 months or less – our concern here is that not all bridging loans are on client’s main residential property/their home –they could just as easily be on a piece of land, a commercial property, a second home or a buy to let property, therefore the definition needs to be clearer.

This raises a further question:

Ø  What does the FSA propose calling the regulated bridge to differentiate these other types of security? – Our suggestion: Short Term Regulated Contract

Association of Bridging Professionals (AOBP)

Jonathan Newman, Chairman of the

AOBP

, told B&C: “The Executive Committee has spent significant time digesting and considering its response. Members have been canvassed on issues which are specific to bridging. We have also had dialogue with NAFCB and astl. We believe our response reflects how current proposals are likely to impact on bridging lending, at a time when the political will is to assist with commercial finance. We also hope to better educate the FSA on this particular sector, which it admits, in its own paper, it has limited information about.”

Here are two examples of the responses the AOBP have submitted to the FSA:

Q67: Do you have any comments on how the affordability proposals should be applied to consumers taking out bridging finance?

-          The assumption that the vast majority of bridging is advanced on rolled up interest is incorrect. The vast majority of bridging is advanced on retained interest products, although the impact is still that the borrower does not have to physically make monthly payments.

-          The proposals with regard to affordability are, however, the appropriate methodology to apply.

 

Q73: Do you have any comments on the proposed prudential regime for bridging lenders?

-          Yes. The rules are highly complex and we are concerned that application of these rules will have a negative effect on competition on the short term market.

-          The market consists of numerous small lenders (over 100 currently) and many of these will need to consider becoming authorised in due course if and when second charge lending becomes regulated by the FSA, and even more if buy to let is brought into regulation.

-          The vibrancy and diversity of the market and its competitive nature will be at risk if smaller firms are priced out with negative consequences for consumers.

 

The Association of Short Term Lenders (astl)

B&C heard from Adrian Bloomfield, Chief Executive of

astl

, who stated: “The astl largely agrees with the MMR proposals, in particular bridging loans being defined as 12 months or less, interest only being acceptable with an appropriate exit, there being no requirement to assess affordability where there are no monthly payments due and exit is via a sale, and the proposed high net worth exemption.”

However, there are a few areas of concern on which the astl has made representation. Adrian said: “Our key concern is around the complexity and cost implications of complying with the proposed capital adequacy regime. The BIPRU rules are highly complex and not suited to small short term lenders. The astl has made representation for a simpler requirement that firms can understand and comply with.

“We do not agree that the requirement for evidence of income should be applied in all cases. We would like it to be made clear that exits via sale, where interest is rolled up or retained, do not require evidence of income to be obtained.

“The astl would also like clarification regarding how loan extensions will be treated and whether lenders will need to have to have qualified, approved persons to give advice to borrowers and handle loan extensions.

“The astl also has some concerns over the lack of definition of credit repair which would catch even those with minimal issues where a bridge and mainstream refinance would work. Guaranteed offers of exit are not a realistic option.”

In conclusion, Adrian said: "This is a very important review and the outcome will have most serious implications for the short term lending industry and it is for that reason that the astl has taken advice, consulted extensively and submitted a comprehensive response to FSA.

“We are hoping for appropriate consideration and a good outcome for our niche industry."

The FSA’s latest Consultation Paper CP11/31, entitled

Mortgage Market Review: Proposed package of reforms

, was published on 19th December 2011 whereby the FSA asked for all industry comments to reach them by 30th March 2012.

By Jason McGee-Abe

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