MMR: Bridging put under the microscope

Among affordability worries and the appropriateness of recommending bridging to vulnerable borrowers, the Financial Services Authority is concerned about bridging finance being offered as a last resort where mainstream finance is suitable.

The regulator also flags the quality of lender underwriting practices both at the time the loan is advanced and where applicable where the loan is extended and the extent to which regulated business is being reported inaccurately as non-regulated loans.

The MMR paper said: “A bridging loan by its very nature relies on speed to complete the transaction as quickly as possible, so we need to strike a careful balance between maintaining it as a viable niche product (i.e. not creating an unnecessarily burdensome regime) and ensuring that lenders are lending responsibly.

“The expensive nature of bridging finance means that it should only be used where it is appropriate. This also makes it very important that intermediaries and lenders carry out careful checks to ensure that the consumer will ultimately be in a position to repay.”

The new rules propose that borrowers expecting to be able to refinance to a mainstream mortgage after repairing their credit on a bridging loan would be considered to have a “speculative” repayment strategy and the loan should not be made.

Where borrowers can provide evidence of a guaranteed offer this would be deemed reasonable.

The FSA also revealed that based on its data the regulated first charge bridging market makes up a very small part of the overall regulated mortgage market and its market share has reduced since 2007 from 0.03% of the market to 0.02% in Q2 2011.

Over the same period those lenders’ non-regulated business including second charge and Buy-to-let loans has more than doubled.

The FSA has called on the industry to feed back on its proposals given that this is the first consultation on the sector conducted by the regulator.