The Last Word
“Speed is crucial in the bridging sector and bringing in additional underwriting requirements which do not serve a purpose is not conducive to this”
of the exit strategy during the initial term should be the norm in any event. With several of the bridging- related proposals care should also be taken by the FSA to fully understand the bridging market business models to prevent rules which unnecessarily prevent genuine bridging transactions taking place. I would also like the FSA to provide reassurance that their proposals will not conflict too dramatically from the EU mortgage credit proposals. We are in danger of having to implement a range of proposals only to see them reversed and/or changed when the EU Directive is finally put in place.
Lucy Hodge, director, Vantage Finance
One of the areas I would like to see changed concerns income checks. It is proposed
that proof of income is obtained on every case, even where interest is to be retained and the exit is by sale of the property. This
36 BRIDGING INTRODUCER MAY 2012
seems like nothing more than an underwriting burden and I cannot see any logic there whatsoever, especially considering that as part of the exceptions made for short- term lending affordability does not need to be assessed where interest is to be retained. Why would a lender need to collect proof of income where they are not obliged to check a loan is affordable? I also think it is fair to say that should the FSA adopt the approach to require lenders to assess the repayment strategy before entering into a mortgage that this could create a very grey area and become problematic in the underwriting process. Applying a reasonability assessment is one thing, but how far will they expect a lender to go in requesting evidence? Speed is crucial in the bridging sector and bringing in additional underwriting requirements which do not actually serve a purpose is not conducive to this. Where grey areas are created this could result in lenders over-compensating to ensure they are meeting the relevant regulatory guidelines thus negatively impacting on the ability to arrange loans quickly and efficiently.
Gavin Diamond, finance director, Cheval
It is gratifying to see that the FSA has recognised the bridging market - defined
as loans of 12 months or less - as being a niche product area that requires separate consideration. It is also good to know that, by and large, key areas of concern for us have been dealt with satisfactorily by the regulator. The Association of Short Term Lenders has been instrumental in achieving many
of the concessions that have been negotiated. Many of the changes planned are around responsible lending which in principle shouldn’t particularly frighten responsible lenders. Aside from this however there is likely to be significant work and cost involved in putting the new requirements into effect. I have concerns around changes to capital adequacy because the FSA is proposing to apply the same rules as those that apply to deposit-taking institutions. These are likely to be particularly complex to understand and apply if they come into force. Overall the FSA has presumed that the impact of its changes on short-term lenders will be minimal but I am not totally convinced about this. We will need to understand exactly how the rules are going to be applied before being able to accurately assess their impact. I predict that one unintended consequence of the rule changes could well be that some lenders exit regulated lending in the face of steeply rising compliance costs. This cannot be good for the consumer.
Laurence Goodman, chief executive, Bridgebank Capital
The primary change that we would like to see the FSA implement is in
relation to capital adequacy. Short- term lending does not involve the same risk as long term lending as the funding used is often secured for at least the length of the bridging loan term. Therefore the risk to borrowers due to the non renewal of financing facilities is remote. Subordinated loans represent a material form
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