Regulation adds a layer of clarity and authority to a lender's practice, however it also presents more hoops to jump through. As a process, it ensures a lender remains firmly on the regulator’s radar.
Compliance hoops will inevitably have costs tied to them and, in some cases, this could translate into slightly higher rates for the client. So in order to boast the stamp of approval from the FCA, some lenders may be forced to sacrifice that eye-catching product rate.
With the recent implementation of the Mortgage Market Review (MMR), the market has been reminded that one day the regulator will have its claws firmly clasped around the bridging world.
On the topic, Gareth Lewis Director of Bridging at regulated lender Precise Mortgages said: “Although on the face of it the MMR hasn't had a significant Impact on the regulated bridging market, I'd question whether the lenders that operate in this space are truly ready.
Gareth questions whether regulated industry lenders have made the adequate changes to assess exit routes: “My worry is more [on] the impact MMR has for a client when exiting a loan. What changes have these lenders made to their underwriting process to allow them to stress test a refinanced exit?
“Longer term lenders are now working on a strict affordability calculation to allow them to determine how much a client can borrow, have the regulated bridging lenders implemented their own affordability checks to see what a borrower can obtain on a refinance?”
Jonathan Samuels of Dragonfly Property Finance said FCA authorisation improved how thorough the lender’s focus is on the exit of a loan.
At the AOBP Forum last month on the topic of regulation, He said: "It helps you on the whole so it makes you a better lender. The process of becoming regulated also can improve the business – it helps put you into better controls and you can present it on paper."
Some lenders, like Omni Capital, fully understand the role of a regulated lender, but have chosen to focus efforts elsewhere.
Also speaking at last month’s Forum, Colin Sanders, CEO of Omni Capital, said regulated lenders should be applauded for gaining authorisation. He stated that even though the boutique bridging lender is not regulated, the culture of the business is of an FCA authorised institution due to the experience of its staff.
“Omni’s decision was a calculated one about a year ago having looked at the market that we operate in, and are pretty successful in, we decided we are better placed to invest our time, energy and resources in developing new niche products which actually offer something to the market [instead of] going into the process of authorisation for what we thought was a fairly niche market in itself.”
Capital Bridging Finance made its recent decision to apply for FCA authorisation to expand its product range and qualify for larger investment from funders.
Keith Aldridge of Capital Bridging Finance believes that as the market progresses, encouragement from funders may play a large part in a bridging lender’s choice to become regulated.
He said: “Certainly at the moment it’s not an issue if you’re not [regulated] but going forward I definitely think you will need to be regulated.”
Some might say, the regulator has begun to stalk the skirts of the bridging market while it sizes up the industry. And until it pounces in its entirety, the choice is left to the lender to decide whether it is ready to make the jump or not.
One thing that can be said is that on average, perceptions in the lender space on regulation in bridging certainly seem to be scattered. A spread one can expect will become more direct as the market advances through the quarters.
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