Bridgingwatch

Since my last column the issue of retained interest has been the dominant area of focus within short-term lending.

Over the summer, the FSA wrote to all regulated short-term lenders saying retained interest is an unfair calculation method and in breach of regulations.

The FSA stipulated that where non-compliant retained interest is being charged, changes need to be implemented ASAP and — potentially — redress paid retrospectively.

Clearly, this could be a major financial and reputational blow for long-time regulated bridging companies.

More on this story as it develops but what is not in doubt is that when dealing with any short-term loan and not just regulated loans, transparency around fees and interest charged is of paramount importance.

Different lenders will always have different criteria and there will always be nuances but in my opinion it is vital that the fee structure and total cost of credit is clearly laid out and easy for borrowers to compare with alternative products.

What is also important to remember — and it’s easy to forget this as the retained interest storm blows through — is that pricing is not the only consideration when placing a bridging application. Certainty of completion within the required time line is often of equal importance.

When choosing a lender, you need to look at a whole host of factors, from financial strength and certainty of completion to speed of turnaround and flexibility.

After all, there is no point having the cheapest deal out there if the deal comes together too late or never materialises at all.

If there is another area I expect the FSA to take a much greater interest in moving forward, and perhaps sooner rather than later, it is repossessions.

Bridging lenders have a reputation for being far more aggressive in the way they recover loans relative to mainstream lenders and this area of their business could soon come under increased scrutiny. As the industry grows, expect the spotlight it is under to grow in intensity, too.

In other news, United Trust Bank published some research recently showing that a significant 80 per cent of brokers have used bridging loans for non-classic bridging purposes.

This will not come as a surprise to many involved more closely in the industry. Bridging has always been a non-conventional product used for multiple situations beyond merely bridging the gap between a property purchase and sale.

But it is good to see that more and more brokers are realising that bridging loans can be suitable in no end of situations — and are starting to act accordingly.

The CML is probably right to say that there is a degree of noise surrounding the growth of the bridging sector but what it does not deny is that the sector is growing.

Moving on from bridging loans, in recent months, we at Enterprise have been saying that secured loans have bounced back from their nadir in 2008 and this was confirmed recently by the Financial & Leasing Association.

Its latest figures show that second-charge mortgage lending was up 12 per cent in Q2 on Q1, with £77m originated over the period.

Secured — or second-charge — loans can be appropriate in many different situations and are especially common either when a remortgage is unadvisable as a result of early repayment charges or when clients want to raise capital but do not wish to sacrifice their compelling first charge mortgage rate.

As with bridging, we expect this sector of the market to continue to grow.