This has led to the proposition of new regulation under the EU Mortgage Directive that could alter many areas of the industry.
This not only affects homebuyers; the Directive will also impact on buy-to-let and bridging finance providers.
An issue that requires greater definition is what constitutes a ‘residential’ property under the EU Directive?
Essentially, this will take into account investment properties purchased at auction and buy to lets, often initially funded by bridging finance. However, are the property investor and developer classed as consumers – the ones the EU Directive aims to protect?
There is no doubt this regulation will create a further cost to the industry, for example, the significant effort and cost of implementation to lenders and brokers. It will mean big changes to processes, particularly in the property investment and developer markets.
Bridging on investment and commercial properties in particular has experienced rapid growth in recent years, as a significant influx of new entrants seek to fill the gap left by high street lenders.
The proposed regulation in this sector will stifle growth and could well impede those it aims to protect.
Private funders who might have moved into the market are less likely to want to absorb the increased cost of compliance – restricting competition when it is needed most.
Although regulation is aimed at providing greater protection for the customer, there are still a number of issues that need to be considered, such as the discrepancies between what the FSA may require from regulation and what the EU Directive may finally deliver.
As a result, we could well see the appetite for bridging diminish as regulatory pressures impede property transactions for the types of consumers described earlier.
Regulation, if too stringent and misplaced, could change the whole nature of bridging and remove this as an option for investors altogether.
However, given that the industry is unlikely to be able to completely resist the requirements of the Directive, we must work to minimise the potential for negative consequences by embracing the benefits that could result.
Several lenders have already taken the steps to offer products that are regulated by the FSA, thus increasing their appeal to a broader customer base.
Ultimately, increasing regulation aims to offer greater protection for the customer and this is something which we as an industry need to do.
However, the question remains – will the proposed Directive deliver greater protection or could it damage an already constrained property market?
Gary Bailey is director at Blemain Group
