Watchdog alarm as property investors breach the £1bn barrier with pricey bridging loans
City watchdogs are increasingly nervous about short-term lending standards as people locked out of the mortgage market turn to expensive bridging loans to help them invest in property.
In the past year, the number of people taking bridging loans has nearly doubled, with estimates suggesting gross lending breached the £1bn barrier in March this year.
While it's tiny compared to the £138bn mortgage market, the increasingly twitchy Financial Services Authority (FSA) has openly warned that some people are wrongly being given bridging loans they can't afford and won't be able to repay.
Indeed, the regulator has started doing spot checks on brokers arranging bridging finance to check they are doing everything by the book.
But there is a limited amount the FSA can do to protect people when bridging loans are done for investment reasons, buy-to-let or development, because these are considered commercial and are overseen by the Office of Fair Trading.
The result is standards can vary dramatically with bridging lenders ranging from one man and his wallet up to fully FSA-regulated and professional outfits. And while many bridging lenders are filling a valuable finance gap, be warned there are those prepared to rip you off.
Typically, interest rates charged are 1 per cent per month plus a 1 per cent or slightly higher administration fee, but there are some lenders charging close to double these rates.
The bridging lender trade body says anyone looking to use these loans should go to an FSA-regulated broker because they will only advise a bridge if it's appropriate for you.
Benson Hersch, the chief executive of the Association of Short Term Lenders, explains borrowers must think realistically about how they plan to get out of the bridge – either by getting a mainstream or buy-to-let mortgage or selling the property.
And Phil Jay, a broker at Complete Financial Services, has another warning for landlords and amateur property developers.
"The many TV programmes dedicated to buying a property at auction always paints a pretty picture: buy property, tart it up and sell for a big profit, but for the amateur it can turn into a nightmare. I would always recommend you use a bridging loan as a last resort as any profits you make could easily be eroded if you face delays or problems," he said.
Julian Ingall, a bridging specialist at mortgage broker Coreco, said that borrowers who haven't used this type of finance before should tread carefully.
"There are often hidden costs that are not always made clear, double legal fees, retained interest and extra administration fees can be overlooked and quickly add up to thousands of pounds," he explained.
While dedicated bridging lenders offer rates from 9 per cent up to 25 per cent a year, for wealthy or asset-rich clients who want straightforward lending on residential properties, some private banks will lend at rates as low as 2 per cent per annum.
- 1 Serena Williams apologises after comment that rape victim 'shouldn't have put herself in that position'
- 2 Disability campaigners celebrate 'victory' after government rethink over plans to make it more difficult to claim disability benefits
- 3 Bankers could face jail after report urges the Government to introduce new criminal offence for reckless management
- 4 Breaking the Silence: In the reality of occupation, there are no Palestinian civilians – only potential terrorists
- 5 We never knew Nigella Lawson - and we still don’t
iJobs Money & Business
£500 - £600 per day: Orgtel: FX Options Front Office Java / C# Developer - Ba...
£600 - £700 per day: Orgtel: Project Manager - Front Office - Regulatory IT C...
£600 - £750 per day: Orgtel: FATCA Project Manager - Banking - London - £600-...
£550 - £600 per day: Orgtel: Fidessa Analyst / PM - Banking - London - Up to £...
Day In a Page
A three-bedroom semi-detached house in Lower Slaughter constructed out of natural stone in keeping with the Cotswolds, £650,000
A smartly presented two-bedroom cottage, extensively refurbished with sun-filled garden and terrace, £350,000
A Victorian barn conversion at Heath End Farm with four bedrooms. £1.25 million.
A spacious two-bedroom flat within an impressive Victorian terrace building, close to Fulham Road and New Kings Road, £375,000.
A two-bedroom flat at Grafton Court, a former manor house in the village of Temple Grafton, with private terrace, £450,000
A four-bedroom listed mews in Apley Castle with impressive drawing room, £425,000
A two-bedroom flat close to the Regent's Canal with a private patio and a concierge service. £500,000
A two-bedroom flat at the Candlemakers Apartments set over two floors with a balcony. £625,000.
This three-bedroom Grade II-listed thatch in the pretty village of Wigginton. £450,000.
A new two-bedroom flat with a bright open-plan reception and skyline views. £450,000.
A modern home of almost 1,000sq ft is close to Stoke Newington's high street. £499,950
A five-bedroom bungalow in Hoveton with riverside garden and mooring dock, £550,000
A refurbished one-bedroom flat with south-facing reception and high ceilings. £579,950
A four-bedroom Grade II-listed house in Nazeing with large gardens. £550,000
A modern four-bedroom house in a converted stable within walking distance to Peckham Rye. £695,000
Three-bedroom house in a quiet residential area within close distance to Battersea Park. £450,000
A three-bedroom cottage within commuting distance of London, Norwich and Cambridge. £250,000
A two-bedroom cottage with a sun room and gardens in South Chard. £350,000.
A three-bedroom semi-detached house with original features including fireplaces and wooden flooring. £399,950