Nobody knows what the implications of BREXIT will be, but come March there will undoubtedly be a flurry of activity in the property market and much of it will need alternative lending solutions.

The last seismic impact on the market was the recession of 2008 and following it new banking regulations were introduced that forced banks to retain more capital to prevent a repeat of the financial crisis.

The Basel III regulations as they are known, also introduced additional supervision and risk management of the banking sector.

Naturally, banks became more risk averse and lending has become more difficult. This created a short-term property finance vacuum into which stepped the bridging lenders, like Signature Private Finance.

In the immediate aftermath of the financial crisis, alternative lenders seized the opportunity and provided the critical funding required by those trying to sustain their own business operations and property development ambitions.

The increasing professionalism of the alternative finance sector has ensured the traditional lines of separation between bridging lending and mainstream lending have become increasingly blurred.

Whatever the sector, regulators like total clarity; blurry lines of separation are anathema, particularly when it involves money.

In the finance sector, it was recognised these blurred lines could create instability, which required checks and balances to be introduced to address the issue of unnecessary exposure of borrowers in an unregulated market.

Disrupting the status quo

Change is inevitable if progress is to be achieved and whilst operating in a sector managed by heavier regulation delivers greater administrative challenges for bridging lenders like us, we embrace the changes and the need for change.

It is hoped that regulation through the Financial Conduct Authority (FCA), will allow the more professional brands to increase their market share and help manage some of the less reputable companies out of the sector.

When considering the loan underwriting criteria adopted by mainstream lenders against that of the alternative sector, reputable bridging lenders have always followed sound loan policies because in the past they were often working with higher risk borrowers.

This approach has ensured that mainstream lenders have had to make significant changes to their processes to meet the standards imposed by the Mortgage Market Review in 2014. By contrast those of us in the bridging finance sector have had to do very little to prepare for regulation.

The bridging lenders that have survived for more than a few years have adhered to responsible lending criteria, with strict affordability standards, genuine earnings multiples and high LTVs, all of which are essential benchmarks to reduce risk on both sides of the deal.

EU still pulling strings

The European Union Mortgage Credit Directive (MCD) came into effect in March 2016 and introduced tighter controls on consumer credit agreements related to immovable residential property. It has undoubtedly created further administrative complications for high street lenders.

The impact of the MCD on bridging lenders has been less dramatic, but lenders must now be careful they classify their loans correctly, with unregulated lenders not delivering regulated loans.

Recognising the benefits of regulation, Signature as a business has been working towards becoming a regulated lender. It will help the wider bridging finance industry if more firms adopt our approach and increase transparency, trust and customer satisfaction.

This desire for alternative lenders to achieve the same regulatory standing as high street lenders, demonstrates the success of businesses like Signature is based on a lending model built on robust risk management practices.

We will be looking at the definition of and differences between Consumer buy-to-let loans and the sort of buy-to let loans we deal with, in another blog soon, so keep your eyes peeled. In the meantime, if you have a need for short-term property finance, please get in touch.

Send us a message and we will get back to you as soon as possible.
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