How advisers can check reliability of providers

“Also lenders which are FCA regulated will have had to undergo stringent checks to qualify, which should provide a measure of security.”

All bridging loans are subject to the Consumer Credit Act, so the contract the borrower enters into is governed by UK law.

“If an issue arises between lender and borrower, or the agreement is deemed to be unfair in any way, the courts have the jurisdiction to make a ruling,” adds Danny Waters, CEO of Enterprise Finance.

After the responsibility was recently passed from the Office of Fair Trading, the Financial Conduct Authority now regulates bridging where the loan being applied for is on a ‘first charge’ basis.

This is where the loan is secured against a property where the borrower occupies or intends to occupy at least 40 per cent of it, or the money being raised is to be used in connection with the borrower’s main residence, says David Kinane, partner at Paxton Private Finance.

“There are however exemptions that are applicable to second charge bridging loans.”

But there are many well managed bridging lenders which have chosen not to be regulated by what is now the FCA, simply because they do not lend in the regulated sector.

“Many bridging lenders only offer unregulated lending, which is restricted to lending on commercial property or residential buy-to-let and second charges on a residential property,” says Mr Jupp.

Mr Kinane stresses that it remains crucial for advisers to ascertain the financial strength of a loan provider as well as taking important steps to ensure their reliability, including research and staying up to date with market developments.

“Perhaps most importantly you should take on board recommendations from other advisers and take to the time to meet the lender, to ensure they will be able to maintain a good working relationship throughout the process,” he says.

Advisers should always ask about the lender’s experience, how long has it been in the sector, what loan volumes is it doing.

When choosing a bridging lender, the rate is clearly also very important for the client, but this needs to be viewed alongside other key factors such as financial strength, speed of turnaround and funding lines, advises Jonathan Samuels, CEO of Dragonfly Property Finance.

He says: “Saving marginally on rate counts for little if the lender you have borrowed from goes pop or experiences funding problems and the deal falls through.”

Mr Waters stresses that all the major bridging lenders these days are well funded and capitalised. “The sector is much stronger than it was pre-crash.”