The regulator temporarily shut down the SRB market in February, but said that some firms are looking at other ways to generate SRB opportunities.
“We have recently become aware of firms that have been marketing bridging finance as an alternative to SRB. This is aimed at encouraging these vulnerable consumers to refinance their way out of difficulty. There is a very high risk consumers could end up in an even worse financial position.
“We would like to remind firms that bridging finance must not be sold and marketed in this way and we will take action against any firms found to be active in this area.”
Benson Hersch, chief executive officer of the Association of Short Term Lenders (ASTL) added: “In its latest regulation round-up issued to firms, the FSA has warned against firms promoting bridging finance as an alternative to SRB; and typified SRB as ‘a last resort for borrowers who are in financial difficulty but need to stay in their home’.
“The ASTL does not promote bridging finance as a last resort. Bridging is a legitimate and useful finance tool for borrowers who are unable to get mainstream financing within the time period that funding is required. The exit route is a fundamental part of bridging underwriting and responsible lenders would not lend to householders where there is no logical exit which would enable them to repay their loans.
“In many cases, the exit is a sale of the property, and bridging finance provides the time necessary in order to market the property and obtain a reasonable price.”
The SRB market involved home owners selling their homes at a discount to firms that then promised to let them stay on as tenants.
However, following a thematic review, the regulator found most deals “were either unaffordable or unsuitable and never should have been sold”.
In February, the FSA said it had taken action against several SRB businesses, including sending one to its enforcement division, and that the market was, in effect, suspended.
The FSA has now published finalised guidance for firms, outlining in detail the practices it came across during its review.