News & Views

Fincorp thinks: Regulation is coming to the world of bridging

By Nigel Alexander, Director, Fincorp.

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.

Fincorp predicts higher bridging proc fees in 2014

Bridging lender Fincorp has predicted 2014 may well see bridging lenders trying to woo brokers with higher procuration fees as they vie for business.

But the lender has also warned brokers to be wary of this tactic, suggesting that it will ultimately be the borrower who pays for the uplift.

The prediction comes from Fincorp director Matthew Anderson who admitted that the bridging market has grown rapidly over the past five years but “has probably reached a natural limit” in terms of straightforward bridging.

This growth has led to a much more competitive market for short-term lenders with various new lenders launching into the market even as recently as November 2013. As such, headline rates have dropped while loan to values have lifted.

Following a recent rise in proc fees at another lender Anderson said he could envisage other lenders following suit in 2014.

He said: “Brokers do a great job introducing borrowers to lenders and in some cases they do a considerable amount of work getting cases ready and packaged in a way that lenders are able to assess the deal more easily and quickly. For that they deserve to be paid a decent proc fee.”

But he warned:  “I don’t think lenders are inflating proc fees at the moment but I am wary of this as a tactic to take market share when a sector gets heated. That could lead to bad outcomes for the borrower who in most cases will end up paying for that additional income.”

The warning comes as part of Fincorp’s predictions for 2014 in bridging.

Anderson has already publicly suggested there will be consolidation between lenders in the market over the next 12 months as competition continues to heat up. He said he expects to see more product diversification under the banner of bridging as well.

Anderson said: “We’ve already seen this start to happen in 2013. Lenders are innovating to fill new gaps in the market as old gaps are filled. I think we’re almost at a plateau for traditional bridging but there are obvious niches developing with lenders looking at more medium term products, heavier development finance and a growing appetite for more commercial type deals.”

He is also predicting a boost in second charge lending next year. He said while regulatory responsibility for this sector will move from the Office of Fair Trading to the Financial Conduct Authority in April 2014, thereby increasing compliance for firms, he doesn’t think it will cramp the sector’s volumes.

Anderson said: “I suspect this move will make doing these loans that much more cumbersome but there is an obvious demand for them in the market. As a result I think they will probably still go through – they may just take a bit longer to transact.”

Anderson also suggested that the market should watch out for even more new lenders piling into bridging next year.

Anderson said: “Fincorp has been approached three times in the past 12 months with funding lines to lend short-term secured on property.

“We have turned it down as the commercials don’t make sense and we won’t compromise our standards. But that money may show up elsewhere as the demand for returns is still strong. Short-term lending isn’t a golden ticket for investors though. It’s a business that takes skilled underwriting to get right. It comes back to that mantra – it’s easy to lend money and much harder to get it back.”

Overall Anderson said that these trends were a result of the positive tide of feeling that bridging has become much more mainstream over the past year or so and he attributed much of that success to the Association of Short Term Lenders.

Anderson added: “Our industry has been accused of throwing stones in the past but I think we are a much more professional sector nowadays. Lenders care about being transparent with the customer and broker and more deals are being done as a result.

“We’re looking forward to 2014 as the year that we, led by the ASTL, consolidate that reputation.”

Fincorp sees business volumes soar 68% in 2013

Bridging lender Fincorp has enjoyed a bumper year in its 25th anniversary year with a 68% uplift in the volume of short-term loans approved and lent in 2013.

Fincorp said a large part of the rise was due to an increase in business introduced by intermediaries delivering quality introductions and by clients who came back repeatedly over the year to get funding for multiple projects.

Matthew Anderson, director at Fincorp, said: “2013 has been a terrific year for us at Fincorp. We’ve expanded the business considerably thanks to several key relationships we have with brokers and we’d like to thank them for that.

“We’ve also seen a much broader base in terms of the type of loans we’ve been writing – we have always done a lot of business as a result of people buying at auction, but this year we’ve seen more developers looking at light refurb projects.”

Fincorp has also increased the volume of business done on commercial second charge loans, commercial property acquisitions and several big-ticket prime London residential development deals.

Its largest loan in in 2013 was £8 million, whilst its smallest was just £100,000.

“It’s one of the pleasing things about the past year and we’re confident the variety of deals we’re doing will continue into 2014.”

Fincorp attributed much of its success to various partnerships it has developed over the year, allowing it to expand its geographical reach south from London into Brighton and the surrounding areas, as well west to Bath, Bristol and the surrounding areas.

In May it announced a strategic partnership with bridging veteran Martyn Smith to introduce funding to new bridging lender Bath & West, operating in the South West of England and Wales.

Martyn Smith, director of Bath & West, said: "I have a great deal of respect for Fincorp's commitment to high quality service and, having known the organisation since its launch, it's been a pleasure to work so closely with Matthew and the team. I look forward to sharing even greater success next year."

Anderson said the tie-up had been a success and that he looked forward to rising levels of business into 2014.

Lending standards

Anderson, who has been vocal in the press about the need to be clear and simple on pricing and fees, also underlined the fact that Fincorp’s expansion had not led the lender to compromise its standards on underwriting.

“There has been so much noise in the bridging market in the past year that it’s easy to think the sector has gone boom,” said Anderson. “Indeed various statistics from some parts of the market suggest loan to values across the sector are going up while headline pricing is coming down.”

But he added: “I think there is a core of lenders in the short-term finance market doing a good job providing property developers and professionals with stable funding to get projects done. That’s the sort of lending we are committed to and I’m pleased to say that we have grown our business despite the fact we’ve stayed true to our underwriting standards and haven’t compromised on quality anywhere.”

Anderson also confirmed that Fincorp is looking to expand its team in 2014, building on the success of Gary Playle’s appointment as business development manager in February this year.