The recent announcement by the Financial Services Authority (FSA) that it expects bridging lenders to behave with “the same high standards” on unregulated business as on regulated business has opened up an interesting debate.
We have long held the view that a regulated lender entity has an overriding responsibility to behave in an appropriate manner across all aspects of its lending activities, not limited simply to regulated products. This is laid out in the High Level Standards section of the FSA handbook, under Market Conduct and Customers’ interests sections, stating “A firm must observe proper standards of market conduct” and “A firm must pay due regard to the interest of its customers and treat them fairly”.
The long running debate on whether buy-to-let products should be regulated or not continues, but in our view the overarching principles of affordability should apply to such a product too. A simple reliance on rental income to cover the mortgage payments, without carrying out proper background checks on individuals or companies is far too simplistic in today’s world of risk assessment.
The same can be said of short term and bridging finance and we have no doubt that the regulator is paying close attention to these issues, not least because of the well-publicised use by certain sectors of the market place of buy-to-let products as an alternative to self-certification.
To be fair, most of the lenders we know behave in a completely transparent and compliant way in their promotion and sales of buy-to-let products. But we are aware of some with less than prudent methods of operation, hiding behind the “it’s not a regulated product, therefore regulatory rules do not apply” argument.
It looks to us like their days are numbered.
Brian Pitt is CEO at financial services risk advice and due diligence company Rockstead. He can be contacted at Brian.firstname.lastname@example.org