I’m just going to say it. Short and sharp. Because I don’t think it’ll be popular.
I think bridging is going to be regulated.
To be fair I don’t think this is going to happen overnight but I do think it’s now on the horizon for real.
There are plenty of people in bridging who have been talking about the short-term funding market going this way for some time. Many of our lending peers have applied for and been given permissions by the Financial Conduct Authority. Others are still waiting to hear whether their applications will be successful.
We’ve also seen various players come into the market over the past five years who are already regulated and they have, to their credit, done well.
They have also shown it’s possible to do short term lending under the auspices of the regulator and still offer competitive rates.
My own feeling is that the Association of Short Term Lenders has done a stellar job liaising with the regulator about how bridging fits into the Mortgage Market Review. But with second charges and all Consumer Credit Act lending activities being supervised by the FCA after April 2014, it simply looks as though it might make more sense if the whole thing was regulated under one regime.
I am in no doubt that these comments will probably ruffle the feathers of some in the bridging market. But I’d reiterate what I’ve been saying for a long time. There is a core of lenders in the bridging market who do a very good job, operate transparently and fairly and do the best thing by their clients – whoever they might be. For these lenders, becoming regulated should just be a case of getting their applications right and being open when talking to the regulator.
It is not the behaviour of these lenders that needs to change, it’s those at the edges of the market who are flying, frankly, too close to the wind.
The obvious way to crack down on these lenders and ensure that the whole bridging market adheres to a quality standard is to make it impossible for them to operate. And that’s why it seems to me that regulation for those of us in the sensible end of the market makes sense.
How would this work in practice? Well I’d put money on it that the people who look after our sector at the FCA are debating this at the moment.
Given that so much of the short-term sector is really commercial lending, by which I mean lending to businesses, property developers and professionals, it doesn’t make any sense to regulate the lending we do in the same way as residential mortgages.
Affordability stress testing and monthly expenditures aren’t really relevant for short-term loans. We underwrite deals that make commercial sense and selling the property to repay the loan as a last resort is generally a lot less painful for a developer than it is for a family having their home repossessed.
But it might make sense to regulate the lenders themselves. The FCA said some time ago that it expected regulated lenders to conduct their unregulated business with the same quality assurances and standards as they did regulated business. Under a regulatory regime that enforces lender behaviour the smaller less professional lenders in the bridging market will have either to up their game or quit.
Ultimately it will mean a better bridging market for lenders, brokers and most importantly – the client.
The danger of regulation is that it heaps a lot more cost onto lenders who then inevitably have to pay for it somehow. I predicted recently that 2014 would see some lenders fall by the wayside. I would say now that a slow but nevertheless inexorable move towards regulation will probably exacerbate that.
Let us hope that if this is indeed the intention of the regulator – that it can balance the need to ensure good standards in bridging with the need for a competitive market place with products that work for the customer and don’t price them out of the market. A healthy market has lots of players offering different things to customers with widely differing needs.
Better standards are a good thing and we should welcome any move towards that. But we would urge the regulator to keep lines of communication with our industry open. The ASTL and its members are keen to make this market the best it can be.
I for one hope we can help the regulator achieve that.