From left to right: Clive Whitfield-Jones (Jeffrey Green Russell), Mel Fordham (Centrado), Bob Sturges (Omni Capital), Sam Hoban (Belgravia Commercial), Jason McGee-Abe (B&C), Alexandra Jones (B&C), Ray Cohen (Jackson Cohen Associates), Dave Adkins (Centrado), Eddie Goldsmith (Goldsmith Williams Solicitors), Andrea Juniper (Only Bridging) and Simon Juniper (Only Bridging).

The complexity of bridging finance and failure to entirely understand the deal is often the cause of many dead end deals. In response to this, B&C held the first in a series of events last week, its inaugural ‘Happy Hour’, in the attempt to clarify some of the nuances surrounding bridging in an open and frank discussion.

Brokers, lenders, lawyers and compliance experts joined together to debate the agenda for the evening – at what point does a bridging loan contract actually begin? And, at what point does a non-regulated contract become regulated?

Contracts

The discussions that proceeded confirmed that there was very little common understanding of the time at which the deal becomes binding – opinions ranged from when the funds reach the borrower’s account, when a contract is actually signed, even an oral agreement to release the funds or when the solicitor draws down the funds. There is, however, an argument that a contract hasn’t fully started if all the monies haven’t been transacted.

Ray Cohen explained that essentially the courts make the law and it is their interpretation of the law that ultimately makes this decision as and when a case is brought before the court.

The FSA’s rules surrounding this issue are merely guidelines not law, and at this stage there is very little case law precedence determining the actual starting point. This suggests there is still some way to go in clarifying the issue for all parties involved in completing a bridging deal.

Regarding this point as one of the most important discussion points, Bob Sturges said: “I was particularly interested to hear that the point at which a bridging contract becomes effective is shortly to be tested in the courts. The outcome could produce precedence on which future legal arguments rely. One for lenders to watch methinks.”

Summing up the matter, Mel Fordham added: “Obviously, from the discussions we had its clear there is considerable ambiguity and clearly from what Ray and Clive were saying lots of minefields to be avoided, the discussions went on long into our journey home.”

Regulation

The topic of FSA regulation proved beneficial to the broker attendants as there is rarely an opportunity to discuss its effects on their business. Sam Hoban explained, “The most interesting topic is regulation, whichever part of the industry this applies to, as any change in regulation can potentially impact our business income or licence fees.”

The discussion explored the issue of ‘pushing through a deal’ in a non-regulated contract, when it should really be regulated. For example, suggesting a £25,000+ loan (as a business loan this falls outside the FSA’s remit) to a customer who only requires a £20,000 loan in order to avoid a regulated contract.

Yet, it was held that this is a very rare practice and knowingly avoiding regulation is not worth the sanctions that would result – not to mention a null and void contract should the lender default.

Bob Sturges clarified that, “These are the ‘non-mainstream lenders’ involved in the short term industry and who have no connections to the high standards and codes of conduct proscribed by the sector’s trade bodies.”

Ray noted that, “…it was great to hear how the intermediaries at the event made sure they understood what the customer was really doing in order to determine if it was regulated and make sure it was put through the right route.”

The complexity of Consumer Credit Act (CCA) regulation was also highlighted by CCA expert, Clive Whitfield-Jones. Interestingly, he stated that when a CCA regulated loan turns into an FSA regulated loan, one shouldn’t assume that it no longer falls under the remit of the CCA.

There are three particular CCA exempt agreements that are particularly important to short term mortgage lenders, these are: loans for business purposes, loans to high net worth individuals and loans secured on investment properties. [For more information on this

read the first of Clive’s B&C articles on CCA regulation

]

Placing bridging within the wider financial picture, EU regulation also proved an interesting subject of debate. The general feeling was that there is a hope that the HM Treasury would not choose to optionally apply the EU Mortgage Directive to buy to let or bridging. Ray reassured the group that the HM Treasury is likely to exempt any E.U. Directive legislation changes in regards to the short term finance sector in the U.K.

Mel Fordham said, “It’s a great comfort to have the understanding EU regulation will be avoided by the HM Treasury – but as we all know, nothing is cast in stone!!”

Many other topics arose during the evening, including the issue of agency agreements and packager regulation too, however, we thought best to leave these for yet another happy hour. Stay posted for your invite!