Jonathan Samuels, CEO at Dragonfly Finance, says that the FSA’s move was not unexpected, but that it had already caused big changes in the industry.
“Did the FSA’s letter come as a surprise? No,” he admitted to Mortgage Solutions “I didn’t have any inside track but it wasn’t a surprise. I understand what they’re saying, and it makes sense.
“The FSA are right to look at this issue of retained interest and whether it was treating customers fairly. They’re not talking about professional investors, but about people’s homes, people who wouldn’t be taking these loans out on a regular basis.
“We told the FSA when we got our business approval that we would use rolled up interest rather than retained interest. They wrote back to us immediately and said that was okay and there’s no investigation for us. For some other firms it’s going to be a bit of a journey with the FSA.”
The CML recently said that a two-tier market was being created, but Samuels told Mortgage Solutions that the industry was likely to become more fragmented than that.
“There’s probably more than two tiers, but the issue with bridging is that there are very low barriers to entry and we’re seeing a lot of smaller firms coming in.
“It’s opportunistic, they’re seeing a good risk return but I think that is a misreading of the complexity because it appears simple when it’s not. We’re seeing issues and some lenders have come a cropper.
“It goes back to what you’re in the market for. Are you in it for a short-term quick buck, and there’s plenty who are in our market for that, or are you in it for the long-term? Those firms need to build a real business, with a real brand and responsibilities with the regulators, clients and brokers.
“Our target is to have a £1bn loan book, and we have to do that in the right way.”
Dragonfly expects several firms will be forced to refund interest that was calculated unclearly, and while that could cause firms problems in the short-term, Samuels expects it will prove best for the industry in the long run.
“The FSA may decide that they’d like regulated lenders who have been retaining interest to reimburse some borrowers the differential between what they thought they were paying and what they did pay.
“We may also see some lenders, who have been using retained, not having to pay anything back because they made it clear what was happening all the way through, whereas another lender may not have been so clear.
“But I think it should be viewed as a good thing. The FSA is all over bridging now. From the outside it might look a bit negative but then I think it’s a good thing. The FSA is all over the industry and going into regulated lenders and looking at the paperwork to learn how lenders are operating and picking out things they don’t like.”
Samuels admits a widely held belief about the bridging sector is that most deals occur in London and the South East, covering high value loans. But he’s quick to dispel certain myths about the market.
“In any month we will be doing 50% of our business outside of London,
“We lent on a multi-million pound deal in Ponteland, Newcastle not long ago and I think if people knew of that then they would be surprised that we were doing deals like that in the North East. We’ve also had a big deal in Bath recently, so we lend way outside of London all the time.”
“Also, our loans go down to £50,000, there’s a misperception that we only deal in big loans, but the £50,000 to £500,000 level is our bread and butter, easily 75% of our loans are in that space.”
Looking at the wider economy, Samuels doesn’t expect a full recovery any time soon, but adds that even in better times there will always be a market for bridging lenders.
“The reason people will always want us as an alternative to the banks is because of speed, no bank out there could lend money in four days. But also the fact we’re pain free, we try our best to make this an easy process for brokers and borrowers, there’s a feeling out there that banks are making it as tough as possible.
“If banks get back to a stage where they’re lending well then we just think the market will open up and we’ll benefit because we will still beat them on speed and we’ll have more scope on our deals.”
