In the FCA’s discussion paper looking at how mortgage rules can be reviewed and simplified, the regular explained that currently, regulated bridging loans must be 12 months or fewer and lenders can change the loan contract into an interest roll-up mortgage or extend the loan in some circumstances.
The FCA said feedback on the consultation suggested the 12-month bridging loan limit can “create negative outcomes for consumers where they use it to fund a development or a large refurbishment that takes longer to complete”.
It continued on to say that respondents suggested the regulator should allow wider use of bridging loans and interest roll-up to back self-build development or home refurbishment.
“If borrowers expect to be able to refinance when the work is completed, they may be likely to get a higher valuation, which would also repay the bridging loan or interest roll-up mortgage,” the FCA said.
The regulator said it could tweak the term limit on bridging loans, but warned that this could increase the total amount of borrowing, as more interest is accrued on the loan.
Aldermore Insights with Jon Cooper: Edition 9 – Why lending strategy is becoming more central in buy to let
Sponsored by Aldermore
The FCA added that it could “introduce more flexibility” into its rules to “recognise self-build, development and refurbishments as standalone loans eligible for interest roll-up mortgage”.
This would clarify its rules and support access to short-term finance for these purposes, it noted.
The discussion paper, which goes to over 70 pages, is looking at the whole mortgage market, with affordability, shared ownership, interest-only, later life lending, advice and mortgage appetite under the microscope.
