Feature title
Bridging In-depth
them over while relocating for work, upsizing to a larger home with a growing family or downsizing at retirement.
Bridgebank Capital, Affirmative
Finance, BM Samuels, Masthaven, Cheval, united Trust Bank and Commercial Acceptance are all able to accept regulated loans. omni Capital, Dragonfly and West one are applying for regulated permissions from the FSA. And Precise Mortgages is a fully regulated residential mortgage lender, though it is currently only offering non-regulated short-term products. Tiuta pulled out of the regulated sector in May, marking the only retraction back to solely non- regulated business in the market. Richard Deacon, sales and
marketing director at Masthaven, says together with a more watchful regulator, this shift in demand drove Masthaven’s decision to become fully authorised. “We became regulated as we feel that the whole market will become regulated at some point in the future. There is also a tremendous amount of regulated business out there that we wanted a part of. The larger lenders are seeking FSA regulation so that they can compete in this arena and also be perceived by many to be a more reputable lender,” he says. Mark Posniak, sales and
operations director at Dragonfly is of the same opinion. “Regulation is an ever moving beast,” he says. “Right now second charges aren’t regulated by the FSA but in 2012 they will be. We do this type of lending at the moment so we’re looking to get fully regulated in preparation for the regulatory net expanding. We’re also missing out on doing some regulated residential lending we get enquiries for which we’d like to do more of. That includes chain break bridges.” Posniak says there is a big opportunity to do chain break bridge lending – where a residential
10 BRIDgIng InTRoDuCER July 2011
“giving short-term finance to an old lady who’s downsizing to buy a new property before she has sold her old home feels uncomfortable. Bridging is expensive and every month she has that loan the lender is eating into her equity”
borrower bridges for a few months on a second home while they sell their primary residence. This specific type of deal has been a bit of a grey area for lenders, with some treating it as regulated and others treating the bridge on a second property as unregulated as it could be viewed as an investment. Alan Cleary, managing director of Precise Mortgages which launched its short-term offering last month, has said openly he is uncomfortable with this sort of lending because he views it as potentially irresponsible. “giving short-term finance to an old lady who’s downsizing to buy a new property before she has sold her old home feels uncomfortable,” he says. “Bridging is expensive and every month she has that loan the lender is eating into her equity.” His view is that regulated or not, all lending should be responsible. But Cohen explains how other short-term lenders balance responsible lending with short-term lending.
“Lenders won’t lend unless
they’re sure that the loan will exit either through the sale of the property, remortgage or other forms of funds coming in,” he says. “They want to be as sure as possible that they’ll achieve the exit in the agreed term and they will normally factor in some period of time to allow flexibility if things don’t go to plan.” Masthaven does this sort of lending and Deacon gives an example. “The client has fallen in love with the property they wish to purchase but has not yet sold their current property. A bridge for
several months is often the answer and has helped thousands of people out in the past, providing the cost of the bridge is looked at as a deal cost. How much is not losing this property worth to the client? This is perfectly responsible lending as the exit route is sale of property.” Posniak explains that this is a reflection of the fact that regulated bridging and mainstream residential lending are not the same markets but similar rules apply. “Any lender worth its salt would
never enter into a transaction where it wouldn’t get its money back,” he says. “Lenders don’t want to be landlords they want to be lenders. If a customer can’t afford it and the deal doesn’t make commercial sense, reputable lenders won’t do the deal.
“Bridging lenders look at deals in a completely different way from mainstream lenders though. Experience and serious underwriting for every deal tells us whether we want to lend. If refinance is the stated exit, reputable bridging lenders will check to see how realistic the client’s ability to refinance is likely to be.” Waters says this difference is key to understanding how affordability works in bridging versus mainstream.
“The reality is very few people can afford borrowing costs of 1.5% a month. The lenders have to ensure the story makes sense and the exit makes sense. Affordability is not as relevant as a plausible exit,” he says.
Montlake is of the same view.
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