Interview
VJ: There is an argument that, in the shortterm market, the incident rate of regulated bridging is growing, caused by high levels of people trading down as the population gets older. People are living in huge houses; they now don’t want to live in those houses so they’re trading down into [smaller residences]. That’s a regulated mortgage transaction and you can’t hide away from that; it needs to be dealt with on a regulated basis. The regulator is going to become more involved in making sure that the older population is being properly looked after, in the same way they’re very concerned about later-life lending/equity release to make sure people are doing the job properly for them. CS: So, bridging is being used more on downsizing transactions? VJ: Oh, yeah. A house will go on the market and it might have six or seven people looking to buy it. A client who is looking to downsize can’t sell but wants to buy this property to be nearer to their family, for instance. The way to do it, because this property is most likely to be unencumbered, is to take a bridging loan across the two while waiting for the current one to sell. That’s a regulated transaction. Any broker selling in that market needs to be regulated and do the job properly. AT: It’s a growing reason why you’re seeing more regulated firms involved in the bridging market: IFAs and residential mortgage brokers— CS: And networks. AT: If you look at the FCA-reported figures on regulated bridging transactions, it’s minimal. Way off the mark of the real world we live in. Where they’re getting their data from is something that perhaps Vic and I need to have a chat about and go to the FCA and say, ‘We think you’re missing this, the reg piece is much larger...’ CS: But how are they missing this? Isn’t it mandatory for all regulated bridging lenders to supply their figures to the regulator? VJ: Yes, but in relation to global mortgage lending, it is still a relatively small figure. CS: However small, do you believe that the figures they have are not quite accurate? AT: I think the number it has is less than 1,000 transactions in a year. Honestly. VJ: Wow. AT: I’m only hearing this second hand, I
haven’t got this officially from Canary Wharf, but that’s the number which we need to do some work on... VJ: It also demonstrates the viability of this piece of the market because it’s going to grow, I think, exponentially over the next two or three years. Maybe two years ago, we were all beginning to wonder whether the bridging market had a future at its current level, [and] actually it’s gone the other way. The worry for a lot of people in the market—networks in particular, with their reams of ARs—is whether or not they should give permissions for those ARs to write mortgages in this market. It is specialised. You might argue [that] it’s a mortgage.You’ve got the lawyer, the agent, the broker... Why should it be any different? The rules and the understanding and the requirements of the lenders are totally different.You have a number of legal firms who specialise in this area and you have a larger number of legal firms who don’t—and that’s where the problems come about. The wider the process piece becomes, the less likely the case is to complete. We need to make sure that advisers who are operating in this sector understand it from start to finish. VJ: Some smaller building societies are also starting to open the door to bridging. My first concern about that was that they were maybe looking at the fees they could charge … yet they understand that you have this situation where somebody needs money for a short period of time, they want to lend that money and earn a fee at the front of it and quite often they’ll do without any ERCs, so it becomes appealing to the customer, or the broker selling to the customer. We are aware of one building society whose bridging rate is sitting just below 4.2% pa which is a phenomenally cheap rate for short-term lending. AT: There are now some very innovative products in the bridging market anyway … but, do you see that, for your firm, as an opportunity to bridge a customer and then move them on to a full long-term mortgage? Is that what the building societies are doing?
“You have a number of legal firms who specialise in this area and you have a larger number of legal firms who don’t—and that’s where the problems come about. The wider the process piece becomes, the less likely the case is to complete. We need to make sure that advisers who are operating in this sector understand it from start to finish”
VJ: I think [they] are looking at that, particularly where you’ve got a self-build or a traditional development. CS: We have established that the regulated side of bridging is growing but, at the same time, so is the unregulated portion. Making it more attractive, bringing down rates, opening it up to new clients—in a regulated space, that’s fine because it is protected, but that is happening in the unregulated arena, too. Do you have any concerns about people 63 Jan/Feb 2020