The latest Bridging Trends report revealed that 43.7% of bridging loans in the first quarter of 2018 were regulated and 56.3% unregulated. The percentage of regulated bridging loans have increased in this period. If this trend continues, regulated loans could soon surpass unregulated loans.
Loans that are not regulated by the Financial Conduct Authority (FCA) include buy-to-let loans, refurbishment loans, bridging loans to complete property auction purchases and other loans taken out by businesses rather than individuals.
Many brokers arrange unregulated loans. They can be more profitable, but also carry a higher risk of default. Bridging loans for individuals that are used to break house buying chains are fairly low risk in comparison.
A partner at Lightfoots Solicitors, Ian Norman, believes that regulated bridging will soon be more common than unregulated bridging finance. He said:
“Since the introduction of the Mortgage Credit Directive and the complexity it has brought to the regulatory perimeter – coupled with the significant growth in the sector – I think it is likely that regulated bridging will surpass unregulated bridging in the future.”
It is possible that the FCA may bring more loans into its ‘regulated’ category. There have been discussions on the possibility of making more bridging loans to small and medium businesses subject to regulation. If this happens, it will mean that lenders will offer more regulated loans.
If the housing market slows down, there will be less demand for bridging loans to complete house purchases, and this could result in less regulated bridging lending.