The trouble with regulating bridging finance
The trouble with regulating bridging finance
Following the property market peak of 2007 and subsequent, painful nosedive bridging finance as a product type has changed fundamentally.
Bridging firms lending 75% loan-to-value irrespective of the profile of borrower, purchase price or the type property that they are securing their loan against? Long gone, I'm afraid!
These changes are partly due to market conditions, but also because of the current and proposed changes to the regulatory environment.
Dangerous lending
If we head back to the days of the property bubble of 2007 it is my personal belief that the bridging finance market was too loosely regulated.
A number of companies were lending with the knowledge that there was a high likelihood of the borrower defaulting on their loan. Lending is a percentage business and there were too many loans made where there was a significant chance that the borrower would not be able to either meet their monthly interest payments, or repay the bridging loan within the required time period.
As with the nature of financial regulation, the pendulum was allowed to slowly swing too far in one direction and loans were practically available to all. The downturn in the market exposed a number of bridging lenders who wound up as credit crunch casualties and from that point the regulators tried to aggressively correct the market. Of course, the pendulum then ended up going too far in the other direction, becoming very difficult to find some form of equilibrium.
The survivors
History has dictated that when a market correction takes place the higher-risk, growth-focused companies struggle to survive and the remaining lenders, having always practised common-sense lending, adapt and prosper. These lenders tend to have principles that are consistent with the regulator's requirements and by definition therefore need to be less strictly regulated.
From the end of 2010 and going into 2011 it appears almost certain that all second charge lending will fall under the responsibility of the FSA. There is also a good possibility that buy-to-let mortgages, especially for amateur landlords, will also be regulated.
The phrase "closing the stable door after the horse has bolted" repeatedly comes to mind!
Final word
I'm of the opinion that yes, bridging finance along with a host of other mortgage-backed products has in the past been far too loosely regulated, but that does not mean the OFT, FSA or any other regulatory bodies should move so far in the other direction that it assists neither the borrowers nor the lenders that they are looking to protect.
Please visit our website to see our full range of bridging loan products and services or call us on: 020 7036 2000
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