FPC rules could affect bridging
By AdminThe Bank of England's Financial Policy Committee has been given powers to prevent overheating of the residential property market
Section: News from the astl
By Benson Hersch of the ASTL
The Bank of England’s Financial Policy Committee has been given powers to prevent overheating of the residential property market.
The Bank of England’s Financial Policy Committee has been given powers to prevent overheating of the residential property market.
These include capping the size of mortgage loans compared to income or the value of the property.
The new powers may appear at first not to affect bridging and short term lending but may have a much larger impact than anticipated, particularly if the new measures make it much harder for borrowers to get a mortgage.
Whilst this would seem primarily to apply to regulated loans, there may well be a spill-over into non-regulated loans.
The major lenders remain cautious, and could apply restrictions across the board.
This could hit the residential buy to let market. A significant proportion of non-regulated bridging loans are given to borrowers for whom the exit from their bridging loan is refinance into a longer term loan. If it becomes much more difficult for them to get a long-term mortgage, then granting a bridging loan becomes problematical as bridging lending underwriters should always look for a clear exit route from the loan.
It is rather early to see what impact any new measures put in place will have in the mortgage market as we have not yet seen the full effects of the MMR. It is likely to take six to twelve months for the impact of this to be measured properly.
Although it does seem that there is a clear slow down in mortgage transactions since the MMR was introduced, some of this could be due to lenders scaling back a little as they adjust to the changes and the new procedures required. It is just too soon to tell at this stage.
Nonetheless, while it might seem prudent for the Bank of England to wait a while before flexing its new muscles, it’s no real surprise that it acted the way it did.
Indeed, some lenders, such as Lloyds and Royal Bank of Scotland, had already started to impose caps on lending of their own volition.
The challenge is that, if the mortgage market does then slow down, it will be harder to measure whether that is because of the MMR or because of the new measures implemented.
As this is unchartered territory it will also make it hard for lenders - and everyone in lending - to predict the extent of any likely slowdown.
It is of course important that there is not another major property price bubble and the concerns expressed both by members of the Bank of England and by the Chancellor are therefore understandable.
There is also the concern of mainstream lenders over-extending themselves and lending at high LTVs on properties that may well be overvalued.
In all of these cases I have to think that prudence is the best policy.
If the bank and the regulator are happy that lenders are lending responsibly, they will be less likely to over-regulate; so the market could settle down before the next tranche of regulations (relating to the EU Mortgage Directive) is put in place.
This is just one of the issues that will be tackled at the ASTL conference, “Bridging – Opportunities and Challenges” to be held on 16 September. It will be interesting to note just what additional measures will have been instigated by then and to discuss the way forward for both lenders and brokers.
Keywords: Ast, FPC, Finance, bridging loans, short term finance, mortgage loans, cap, residential property, property market, Association of short term lending, Benson Hersch, Associta
Source: Bridging & Commercial — https://bridgingandcommercial.co.uk/fpc-rules-could-affect-bridging