After taking a thematic review of the SRB market, the FSA concluded that the majority of SRB sales were inappropriate or unaffordable, often leading to a detrimental outcome for “vulnerable consumers”. 

Consequently, the FSA has temporarily closed the regulated SRB market; however, it has warned that “…some firms are looking at other ways to generate SRB opportunities”.

SRB is usually aimed at those who are in financial difficulty with the regulator’s findings suggesting that vulnerable customers are being encouraged to “…refinance their way out of difficulty” with a bridging facility and as a result, there is a “…very high risk consumers could end up in an even worse financial position”.

B&C heard from Jonathan Newman, Principal Partner at Brightstone Law and Chairman of the Association of Bridging Professionals (AOBP), who “does not believe this practice is widespread”.

He explained: “There were companies operating in this way some years ago. The focus then was to use bridging for credit repair, before taking borrowers into cheaper longer term finance. That was expensive for the borrower and was not always successful.”

The tightening of underwriting practices in the High Street, increased regulation and publicity has, in Jonathan’s opinion, had the welcome effect of putting an end to such practices.

Jonathan added: “The single most important underwriting responsibility of the lender is to identify and verify a viable exit route at the end of term. The exit may ultimately be a sale of the property or its refinance, but there has to be a clear understanding on the borrowers part, that an appreciable benefit is achieved by borrowing short term to bridge until the exit happens, factoring into that understanding, the cost that comes with the bridging facility .”

Jonathan clarifies that bridging finance is not a natural alternative to SRB schemes and should not be promoted as such, although, on occasions, “…it may provide a borrower with much needed additional time to develop a property to maximise its value before sale or provide extended time to market a property to its best potential”.

When asked whether bridging should ever be used as a method to get one’s finances back on track, he added: “Bridging can be expensive on rate and fees and there are few circumstances where a borrower already struggling with finance will improve his position by incurring further cost, but there may be certain scenarios where bridging can resolve a short term problem to a borrowers advantage, so every case needs to be assessed on merits.”

Alan Cleary, Managing Director at Precise Mortgages, similarly suggested that bridging for credit repair is not appropriate.

He said: “There is no way that anyone in the bridging market should be offering SRB schemes to customers - it is these firms that are attracting the FSA to the bridging market. Bridging should not be used to for repairing credit; however, I don’t see this issue as one that is widespread.”

The FSA has stated that it will take action against any firms found to be active in this area. It has now published finalised guidance on its review and findings.