Lynda Blackwell, manager of mortgage policy at the Financial Conduct Authority (FCA), told members of the Association of Short Term Lenders that they had concerns about firms trying to lend to the ‘marginally credit worthy’.
She said that while there was nothing fundamentally wrong with credit-impaired borrowers the highest priority must be that they can afford to pay back the money they had borrowed.
Blackwell said the FCA has made it clear that borrowers taking out bridging finance for credit repair with the expectation that it will act as a stepping stone to a mainstream term mortgage was too speculative to use as an exit route.
She said the mainstream mortgage lender must supply a guaranteed mortgage offer for it to be a credible means of repaying the bridge.
After the financial crisis, lenders moved away from remortgage lending to borrowers with an impaired credit background, those on low incomes or the self-employed, towards lower risk house purchase loans.
But this highly competitive, low profit margin market has quickly become saturated.
According to the FCA, the same number of active mortgage lenders (136) which were operating in the market before the crisis are still around today. That same number of lenders are chasing a market which is 50% smaller, 80% of which is controlled by the top six lenders.
Blackwell said this put pressure on the smaller lenders to grow their business and make a profit by turning to higher risk lending.
But she warned: “Growth cannot come from allowing borrowers to self-certify their income, affordability can no longer be stretched on interest only where there is no viable way of repaying the mortgage and credit can no longer be extended so easily to marginally credit worthy borrowers who are going to struggle to repay.”
Blackwell said a quick internet search had brought at least one regulated bridging firm which was promoting bridging finance for credit repair.
“There are many responsible bridging lenders out there but I’m afraid as with every market there are also the less scrupulous.
“The firm that is still promoting credit repair and any others that we find doing similar things can expect to be contacted by us to ensure the website is corrected.”
