The Financial Services Authority said it plans to make bridging lenders adhere to the same capital rules that non-banks must under MIPRU regulation.
This is in spite of bridging lenders’ claims that this could restrict their ability to lend in future and would push the cost of bridging up for customers.
The FSA paper said: “Lenders felt that the higher capital and liquidity requirements would likely increase the cost of products to consumers and ultimately reduce the amount of lending available.
“The overall level of capital requirements we propose to apply to non-banks, was determined using analysis of a wide range of information including information on bridging loans.”
The regulator said to address lenders’ concerns, it carried out a separate piece of analysis designed to understand the impact and ensure that proposals are proportionate to apply to this niche market.
The paper concluded: “We accept that bridging finance has not meaningfully contributed to the pro-cyclicality of the mortgage market and that this type of lending may give rise to different liquidity needs and/or profiles when compared with a longer-term lender.
“However, we believe this can be appropriately incorporated into the proposed qualitative liquidity requirements.”
The proposed approach for credit risk applies the same capital requirement (relative to the size of the exposure) for all loans where the LTVs are equal to, or lower than, 80%.
The FSA said it would expect most if not all bridging loans fit into this category.
It said: “While we acknowledge that the approach may in practice offer a relatively limited risk-differentiation, we believe that the capital requirements resulting from the proposed approach are appropriate.”
