Page 45 - Bridging & Commercial Magazine Issue 5
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 a compromise in the industry is required and, in a market that strives to compete for every deal, it is hard to see how this mindset could change. “The idea of self- governance is not as bold as it sounds as the broker community already has it in the form of networks and membership subscriptions that govern how and why advisory firms and brokers can operate ... the biggest problem with any form of self-regulation, however, is \[that\] there will always be those that feel they do not need to follow the same rules and, without a rule book (regulation) to wave at them, that point cannot be argued.” He adds that it shouldn’t just be focused on new entrants, as existing lenders would also need to be “willing to change” to pioneer a new age of lending standards and conduct. It’s an important point: if all existing bridging lenders’ standards are not at the level we expect new providers to reach, then how can we expect to raise the bar for entrants? For example, lenders marketing headline rates and products that cater for higher L T Vs in a bid to gain more market share could be causing problems. “The issue with this is that regardless of the criteria that needs to be met, the clients’ expectations have been set and they will chase these rates, however possible—even if it means going down the route of the more unscrupulous lenders,” says Alice. “ This will, however, become a deadlock among the lenders as to who markets their average interest rate/leverage first, as it will automatically make them appear less attractive than their counterparts still advertising their best offering, and would likely have to be sorted via an intra- market agreement to stick to the same standards from a certain period onwards.” If it is too difficult for the market to self-regulate, then perhaps FC A regulation is the answer. Roxana tells me that she has worked in banking for a long time and “sadly, no one likes to self-regulate”. As a result, she feels that regulation would be a “positive” thing. Niall Brown at Auxilium Real Estate agrees that regulation wouldn’t necessarily be bad news, if the regulator had a very clear message about how it was being managed. “However, at present, there is extremely poor information on how regulation/self-regulation should work.” Does the need for higher industry standards outweigh the potential stifling effect of regulation? It could well dampen business prospects. In March 2016, the FCA introduced new rules for second charge mortgage lenders as part of the Mortgage Credit Directive (MCD). The impact of regulation on this market can be shown in the value of annual new second charge mor tgage business. The FL A tells us that the value of new business increased by 35.7% in 2015 compared with 2014. However, in the year that MCD was implemented, the value of new business only grew by 3. 9% year-on-year. The concer n is that we could see something similar in the bridging market if regulation was introduced. Andy claims that regulation of the rest of the bridging market would “significantly” increase operational costs across the industry and, while this would act as a barrier to entry for new lenders, it would also negatively impact the operational costs of longstanding, reputable lenders. “One option is to consider a middle ground: the regulator could oversee an independent trade body, which is charged with upholding the reputation and standards of the industry without having regulatory powers,” he adds. “Controls could include the requirement for regular, public reporting of the risk profile of the loan book, default experience and the typical interest rates being charged.” However, Mike highlights that regulation doesn’t necessarily do what it is designed for. “Regulatory barriers to entry haven’t helped, for example, the investors \[in\] Lendy...” Is the bridging market next on the FCA’s agenda to regulate? Considering at the end of Q2 2019 it was said to be worth £4.62bn, this is merely a speck on the regulated residential mortgage sector, which is worth at least £1 trillion. So, put in perspective, and given the regulator’s historical understanding of the bridging market, it seems unlikely to be on its immediate radar for outright regulation. In the meantime, though, it’s clear that we need to do something. Maybe the industry should stop wasting its time asking for the bar, and actually get on with creating it. Cover story    43  Sept/Oct 2019 

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