Advisers who recommend ‘bridging’ loans have been told they could be considered guilty of assisting ‘gaming’ if they do not probe borrowers’ exit strategies, according to the Association of Bridging Professionals.
Ray Cohen, executive committee member of the association and compliance expert at Jackson Cohen, said while the Financial Conduct Authority’s focus on gaming in the mortgage market has mainly looked at buy-to-let to avoid affordability checks, advisers need to be aware that abusing bridging loans is also on the agenda.
He said the city watchdog is aware that using bridging on a buy-to-let basis is easier to then re-finance to mainstream buy-to-let as it already appears to be a genuine buy-to-let case.
“At the end of the day, whether or not the borrower meets all the payments, if the system was gamed by claiming to be a buy-to-let when it wasn’t then this is mortgage fraud; the same applies to other types of gaming.
He stated that intermediaries have a responsibility to ensure they are not used to further financial crime, as mortgage fraud is firmly within this arena. “When placing bridging loans the exit strategy is often claimed to be sale of the property.”
However, he asked whether intermediaries end up refinancing the loan instead, they are aware the exit was set to be different than at the time of application and if there really was an intention to sell.
Writing in the association’s newsletter, Mr Cohen explained that while a genuine change of strategy may occur, this should not be the norm and should be as a result of changing circumstances.
“It is easy to use sale as an exit strategy when another option such as refinance would be impossible to demonstrate. This can occur, for example, when the borrower doesn’t qualify for a loan at the present time, perhaps because of poor credit.
“The MMR rules banned bridging for credit repair.”
Whilst lenders will have their own strategies to try to avoid these cases, Mr Cohen said advisers need to ensure they are not inadvertently supporting gaming by lax systems and controls, adding that any hint an adviser knew or should have been aware that the system was being gamed would leave them and their business exposed.
Mr Cohen added that the FCA is starting their review of the impact of MMR. “Having come under such a lot of negativity from them in the past let’s hope that everyone has done their job well and bridging comes out with a clean bill of health.”
To learn more about gaming and earn CPD read FTAdviser’s Guide to Buy-to-let.
emma.hughes@ft.com
