CML urges caution over bridging finance

The Council of Mortgage Lenders says it welcomes increased regulatory scrutiny of the bridging finance industry.

The CML says there is an increasingly fuzzy distinction between bridging lending and long-term lending at a time when the market is being surrounded by hype. While it remains broadly supportive of the industry, questions have been raised about the quality of current business practices.

In its latest News & Views publication, the CML says:“Given that the reputation of good bridging lenders, as well as other mortgage lenders, has the potential to be affected by the activities of less scrupulous lenders and brokers operating in this niche area, we support a strong FSA line on “policing the perimeter” to ensure that business which should be regulated is not being written as unregulated.”

“The current levels of hype about this market – as well as the regulator’s concern, and the relative lack of reliable industry data – raise questions about the quality of current business practices.”

A recent survey carried out by United Trust Bank revealed that more than 80 per cent of brokers have used a bridging loan other than to bridge the gap between a property purchase and sale. Brokers are increasingly turning to bridging loans in order to solve problems surrounding short term cash flow issues and raising capital.

United Trust Bank says that between £1m and £5m of bridging business was placed by 39 per cent of brokers in 2011 while 9.4 per cent placed over £10m and 23.9 per cent placed over £5m.

The CML says that hard data on the industry is difficult to come by and there is the possibility that more certain elements of its success are overstated.