Regulation of buy-to-let lending

“Sooner or later, in any economic climate, the man in the street needs to be protected.” So says Adrian Bloomfield, the chief executive of the Association of Short Term Lenders, speaking to Bridging & Commercial about possible further FSA regulation, which could affect the bridging finance sector. 

Last time we met up, Mr Bloomfield spoke of the regulator becoming increasingly interested in short term lending, and had been visiting some of the FSA-regulated members of ASTL to look further into their activities.
Since then, the FSA and ASTL have had a meeting, which Mr Bloomfield described as “most constructive”, where regulation of buy to let and second charge lending was discussed, although no answer was given. If regulation does come about, it is not thought that it will be introduced until later next year.
“It will require a process, including consultation and discussion papers,” he said.  “The fact that a body as busy as the FSA agreed to have a dialogue with us is significant.”
There are many matters to consider with regulating a sector as niche as the short term finance one. Issues such as affordability and dealing with borrowers in arrears tend to be handled differently than they would be by a long term lender.
“In bridging finance, affordability is usually centred on the exit route. If the borrower plans to pay off the loan in six months in a lump sum, by way of remortgage or the sale of a property, then this is what bridging lenders assess.” Mr Bloomfield explained.
“The FSA pointed out that lenders need to check affordability by assessing if monthly repayments could be made if and when monthly payments are required under the contract. Additionally, repossession being a lender’s last resort is a TCF standard, yet in some instances in mortgage finance, where the situation looks hopeless, it could be in the customer’s interest to sell the property quickly to protect the customer’s remaining equity.”
As dialogue continues between the ASTL and FSA, it will no doubt be interesting to see how the bridging industry and City watchdog resolve these issues and come to a conclusion, which will benefit the consumer, as well as improving the image of a sector that has been recently been striving to move away from unfavourable, past stereotypes.
“I would rather have regulation than ill discipline and bad behaviour. After all, whoever fears regulation probably needs to have their motives questioned.” Mr Bloomfield added.