MMR: Bridging not arrears management strategy

Sarah Davidson

December 19, 2011

Its latest Mortgage Market Review paper reveals concern over the appropriateness of bridging finance being used as a means of repaying mortgage arrears, particularly for vulnerable consumers facing repossession.

The paper said: “Given the decline in the sub-prime market [we are concerned about] whether bridging products are being inappropriately targeted at vulnerable, credit-impaired consumers, with promises that they will rehabilitate the consumer and improve their credit scores.”

The FSA found that the average term of a bridging loan is around eight months and in February 2011 some 33% of all bridging loans needed to have the term extended.

It said: “We understand that for some consumers this may be unavoidable because, for example, building work has exceeded its completion date, but 33% is nonetheless a very high proportion of loans.

“We are concerned that lenders may be extending the term of the loan when, in reality, the chance of the consumer being able to repay the second time around is no greater.

“Where a repayment strategy has failed once, it is important that lenders consider whether extending the loan will provide the consumer with a more realistic chance of repaying or whether they are just increasing the overall debt, reducing the remaining equity and therefore delaying the inevitable.”

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