Speaking at today’s Mortgage Business Expo Sheila Nicoll, director of conduct policy at the FSA, said bridging could be appropriate and helpful to stop a chain break situation but that there are situations where it would be neither appropriate nor affordable for borrowers.
She said: “Imaginative answers require careful thought given the significance and the potential consequences. If unauthorised firms have provided loans that should have been regulated or if the loan has been misdescribed just be sure that your actions are consistent with the standards expected.”
She warned that the rules state if the borrower has the “intention” to live in the property then the loan is regulated and to put it through as unregulated could mean brokers are slapped with attempted mortgage fraud.
She said: “Consumers might be encouraged to set up a company shell or to declare their intention not to live in the mortgaged property.
“Similarly a buy-to-let mortgage might seem like an answer for a consumer who can’t show the necessary income for the loan they want but if they do live in the property or intend to move in there it follows that the application is false and you might find yourself holding with a fraud.”
Nicoll clarified the rules for delegates: “It would be wrong to think that conduct standards never apply to loans on property where the borrower isn’t currently living. The legal definition says the borrower only has to have the intention of living there.”
She revealed that one repeated concern the FSA hears is that current pressures might cause some to “create solutions better described as imaginative”.
She said: “For example bridging loans have clear consumer benefit in unlocking property chains but they are likely to be a far less appropriate answer for borrowers who are in payment difficulties. They simply put off the inevitable without any clear evidence they are in the consumer benefit.
“These strategies seem in some cases designed to circumvent the purpose of regulation and consumer protection.
“You can add value but you will want to pay attention to consumers’ real need and circumstances and avoid creating solutions that bring their own problems.”
Speaking after Nicoll, John Malone, executive chairman of PMS, added: "The FSA is looking very closely at the short-term sector and I would just warn brokers to please be careful about doing buy-to-let deals and bridging if they think the client will live in the property.
"You might think you're helping your client but this is fraudulent activity."
