of funding for many short-term lenders and they must be accepted as eligible capital by the FSA. The rapid turnover and churn of bridging loans dictates that there is always capital coming back in to the lender to re-lend and therefore un-utilised liquidity needs are quite low. There is no plausible reason which can be given as to why high capital adequacy reserves ought to be maintained by bridging lenders. Generally, the whole issue of capital adequacy for the bridging sector is not really relevant and is a point misunderstood by the FSA. We would like to see it taken out totally in respect of short-term lending.
Colin Sanders, chief executive officer, Omni Capital
Bridging exhibits unique process and product characteristics. The underwriting
component is nuanced and often presents lenders with heightened forms of risk. It is also a product channel more commonly used by financially-savvy individuals. It would therefore be inappropriate
to treat it simply as an adjunct to the mortgage sector. Based on MMR outcomes to date, I’m pleased that the FSA appears to have recognised this. But some areas of uncertainty remain. First, the proposed rules for the capital adequacy and prudential regimes appear complex, costly and generally unsuited to small short- term lenders. Second, I would like it made clear that evidence of income is not required where interest is rolled- up or retained and there exists a clear exit via sale. Third, we need clarification regarding loan extensions and whether advice is to be provided by qualified persons. Fourth, industry opinion is divided on the question of high net worth individuals and the level of protection they need. As they stand, the FSA’s proposal for HNWs mirrors that of the Consumer Credit Act. With the proposed transfer of responsibilities from the OFT to the FSA, a consistent approach would help avoid confusion without adding new and unnecessarily cumbersome rules. Finally, I would like to see clearer definitions as regards a borrower’s principal domestic residence
“As they stand the FSA’s proposal for HNWs mirrors that of the Consumer Credit Act. With the proposed transfer of responsibilities from the OFT to the FSA, a consistent approach would help avoid confusion without adding new and unnecessarily cumbersome rules”
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and how credit repair situations are to be treated. On all these points, we’re working closely with our trade bodies to achieve a proportionate outcome that doesn’t restrict the free-flow of liquidity; nor be so onerous as to add unnecessary costs while restricting sensible innovation.
Wayne Smethurst, director, Capital Advances
There is a problem brewing in the marketplace for bridging loans which stems
from the lack of transparency and that problem concerns audit trails. With four categories of bridging loans – FSA-regulated and unregulated first charges and CCA regulated and exempt second charges – and with the potential confusion this brings, audit trails are critical. This is why they’re part of our core functionality. After all, the broker has a duty of care to their client, whether the bridging loan is regulated or not. But from the broker’s own perspective a full audit trail evidencing how they have found the most suitable deal for a client will minimise future reputational and financial risks. There is always the danger of retrospective regulation and we are all too well aware of ambulance chaser firms that aim to make money out of poor sales practices. Whatever the market ends up with by way of bridging regulations, the broker must be able to back up their recommendation with the necessary evidence. Using a distributor/packager means they will be able to do that.
BRIDGING INTRODUCER MAY 2012 37
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