Set against the constant change of the previous 12 months, the bridging market has steered a steady course in recent weeks. The ASTL’s lending figures for the first quarter of 2021 showed that bridging completions increased by 10.7% on the same period in 2020 and that the value of loan books was up by 3.5%. Applications are continuing to climb faster than completions, which will be of concern for lenders that are currently underwriting £7 for every £1 that they complete, but the value of loans in default has fallen to just 2.2% higher than in March 2020, so there are plenty of reasons to be positive.
There is, however, a cloud that has appeared on the horizon in the form of fee disclosure. Or, more accurately, the non-disclosure to the end customer of proc fee payments made to intermediaries on non-regulated loans.
The outcome of a recent court case has made it clear that if a lender has paid a commission to a broker which has not been disclosed to the borrower, that lender is now more at risk of the entire loan being set aside. If a loan is set aside, the lender is likely to have to make a substantial payment to the borrower and, in some cases, the lender might also be required to pay damages.
The disclosure of commissions to the end borrower is, of course, required by regulation, but this only applies on regulated loans and much of the short-term lending market operated on a non-regulated basis for customers financing investment activities. Many of these non-regulated loans are already written as if regulated. However, at the ASTL, we believe it to be a matter of the utmost importance, that we agree a more consistent approach.
We are currently working alongside our colleagues in other trade associations such as FIBA and the NACFB, to investigate the introduction of a standard minimum level of ‘lender to consumer’ fee disclosure for all of our members at the earliest stage.
It’s really important that all participants in the market – lenders and brokers – ensure that they don’t leave themselves open to retrospective questioning and claims. The regulator historically has never drawn a line in the sand. So, while loans written on a non-regulated basis in the past did nothing wrong per se in not disclosing all commissions, the regulator and the courts will judge a complaint dating back 10 years, for example, based on today’s rules.
The current ambiguity poses a risk to businesses in this sector and so, we need to be proactive in removing that ambiguity and creating a level playing field. At the ASTL we intend to play a big part in this initiative and provide a clearer route forward for lenders, brokers and for customers.