Polarisation in the bridging market remains

Polarisation in the bridging market remains


Much has already been said and written concerning the FSA’s warning about retained interest. In this article, Wayne Smethurst, Director of The Finance Centre, explores the issue further and discusses why it is a significant step towards a customer-friendly bridging marketplace...

Given that it’s not all that long since the FSA gave authorisation to bridging lenders who use this interest method, the FSA is presumably not against retained interest as such. It’s a question of transparency and making sure that the customer understands what they’re getting and how much they’re paying for it. ‘Customer’ is the key word here. Markets are not about products or providers, they are about people – it is customers that define a market. 

Today’s bridging market has evolved from a non-transparent past. Back then, bridging was a sophisticated product for a sophisticated professional. The rate was set loan by loan by the lender, usually a bank, with the rate dependent on the risk. The rate would have been indicated on enquiry as x per cent above bank base rate but the rate at completion might have been different.

Today, we have a polarised marketplace with two distinct sectors. On the one side, we have lenders offering boxed products, with the customer getting pretty much what it says on the tin – an approach that can only improve as the true interest costs become fully transparent. On the other side are lenders advertising products with ‘rates from…’ and ‘fees from…’, where the goal posts move as the deal progresses. To put it another way, on the one side is a customer-led group of lenders and on the other side is the old school.

Now, there’s nothing illegal about the old school way. In many cases, it is a financial arrangement between two businesses in which the borrower should still follow ‘caveat emptor’. But where old school lenders are lending to individuals, often unsophisticated homeowners, this type of approach won’t do.

The FSA’s dilemma arises from the fact that it can control regulated lending but not unregulated lending. It is the regulated lenders who are under the FSA’s microscope and the FSA, to its credit, has said that it expects regulated bridging lenders to behave with the same high standards on both regulated and unregulated loans. 

But why shouldn’t all unregulated lending be similarly transparent, whether it’s provided by a regulated or an unregulated lender? Don’t all customers deserve to be treated fairly? And don’t introducers need to know the true costs of a loan so that they can advise their clients appropriately and source the most suitable products for them? After all, introducers are customers too.

Introducers have a duty of care to their client, whether the bridging loan they are sourcing is regulated or not, but they have fewer point-of-sale tools than the traditional mortgage market to help them exercise that duty of care. Online bridging sourcing is already available and, as the old school lenders gradually join the ranks of the customer-led, introducers will certainly benefit.

Lenders may argue that it’s still a sophisticated marketplace, more complex and with higher risks than the homeowner mortgage market, but this is an argument for greater transparency not less. It is an argument for ensuring customer understanding, not shrouding deals in secrecy. 

For the time being, though, the old school still exists. As a result, the playing field is not level and the polarisation in the market remains. Old school non-transparent lending may have been the norm when bridging was a sophisticated business product for a sophisticated professional market but we’re working in a residential customer market now. And as this market develops, it is the customer’s voice that deserves to be heard.


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