There are two distinct types of bridging loans and these are regulated differently.
Firstly, there are those that are regulated by the FCA. These are secured by first charges against property, which is currently or will be occupied by the borrower or their close family.
Rob Jupp, incoming chairman of the Association of Bridging Professionals, says this covers situations where the loan is to be secured by way of a first legal charge against the borrower’s principal residence, or where they or a family member occupy 40 per cent or more of the property.
Loans secured against investment properties, including buy-to-let properties, or for business purposes, are not currently FCA regulated, according to Mr Jupp. This can include mixed use properties such as shops with flats above, provided the FCA’s residential qualification is not met.
Most second charge loans fall into this category, although some second charge loans may be regulated by the Consumer Credit Act. Lenders and financial brokers need to have an appropriate Consumer Credit Licence from the OFT in order to respectively offer and deal with such loans.
Where a loan is regulated by the CCA, there will be CCA-specified paperwork and a seven-day “cooling off” period.
Ray Cohen, of compliance consultants Jackson Cohen, said the Consumer Credit Act currently catches loans to individuals and partnerships of three or less people. It excludes loans that are already covered by the FCA so, for instance, will catch a second or subsequent charge loan as opposed to the FCA’s first charge.
There are some exclusions from the CCA, according to Mr Cohen. These include loans to limited companies, high net worth individuals, loans predominantly for business purposes and loans secured on investment properties.
“It is worth noting that firms must use the right exemption and get the correct documentation. The loans secured on investment property exemption does not include loans secured on, for instance, a borrower’s own home that is to be used towards the purchase of an investment property.
“The FCA will be taking over the regulation of CCA loans from April 2014 and we can expect some consultations on changes to the regime, especially for HNW definitions and predominantly for business purposes, perhaps to align more with first charge lending under MMR rules.
“This is expected to take place after the European Union vote on the new residential mortgage directive which will bring wider change to the first charge regulated market and is expected to come into play circa September 2015.”
Alan Margolis, head of bridging at United Trust Bank, said: “Borrowers whose loans are regulated by the FCA or the CCA will have the benefit of the additional protection afforded to these loans over and above any common law or other consumer protection legislation.”
