Three little letters are hard to ignore for anyone working in or around the mortgage market. And we’ve all seen the various MMR-related headlines.
Three that recently graced the Mortgage Strategy website highlight some of the concerns and lingering issues surrounding regulatory changes: ‘Gambling, steak and milk deliveries: The crazy questions lenders are asking borrowers’, ‘Three quarters of aspiring homebuyers do not know about MMR’ and ‘Brokers warn applications to take three times longer post-MMR’.
But the question is: how will the MMR affect the bridging market?
Obviously, regulated bridging finance lenders have had to make some adjustments to procedures and systems to ensure compliancy boundaries are adhered to.
As with any regulatory deadline, some tough decisions have had to be made, so there will be some movement in the sector. Some lenders will exit the market, some will make the full transition to become regulated and some will remain non-regulated.
And I believe that the divide between regulated and non-regulated lenders will become more and more evident.
Some regulated lenders may even use the MMR to champion their regulated status to the intermediary community – and they are fully entitled to do so. But this does not mean that brokers should consider dealing only with regulated firms.
Being regulated does not necessarily entail the offering of a superior solution to that provided by a non-regulated entity.
Some of the most ethical and fair lenders I know operate in the non-regulated space and as such they should be judged on their own merits, not simply on whether they are regulated.
Let us underline that post-MMR there remains a genuine need for non-regulated bridging loans as a
growing number of property professionals will continue to seek a host of funding solutions to match their individual require-ments.
Other MMR-related points worth outlining are that bridging loans are limited to a maximum 12-month term and that most lenders no longer allow clients to service debt monthly, which forgoes the need for lenders to delve into affordability checks. (Not that these really change the underlying fundamentals of the sector.)
Bridging finance remains a stepping stone to longer-term funding and the MMR serves only to cement this fact.
The key factor when assessing any bridging transaction remains the ability of the borrower to repay the loan before the end of the term. This highlights the need for a robust and feasible exit strategy
to be considered from the offset before the client commits to a bridging loan.
Beyond the MMR-related headlines the market continues at a relentless pace, house prices being a prime example. Anecdotal tales of “ghost gazumping” and potential buyers queuing around the block all add weight to superbubble warnings, especially in and around London and the South-east.
According to Hometrack, home buyers are said to be paying nearly 97 per cent of the asking price for a property, representing the highest average percentage in nearly 12 years.
As the scramble for residential property increases, this is also reflected in the bridging sector. Recent data from the Association of Short Term Lenders shows that the value of bridging loans written by its members increased by 12.9 per cent in the quarter ending 31 December 2013 compared with the previous quarter and by 39.1 per cent year-on-year.
The value of applications was said to have increased by 23 per cent year-on-year as ASTL members received applications totalling £5.3bn, up from £4.3bn a year earlier. Members were reported to have lent £440m-worth of loans in Q4 2013, up from £390m in Q3, reflecting a continuing increase
There was also a small increase of 3 per cent in the value of the lenders’ loan books at the end of the period, to £1.36bn from £1.32bn.
These figures, while slightly dated, reflect both the pace of the market and the ongoing need for bridging finance as a useful tool to fill the gaps left by the mainstream market.
A few sceptics suggested that bridging might have peaked last year but it continues to go from strength to strength with March/April being some of our best months yet.
And there is no reason to suggest that this increased activity will not continue despite the obvious MMR-related hurdles.