Following the change in regulatory body from the Consumer Credit Act (CCA) to the Financial Conduct Authority (FCA), confusion still surrounds what is and is not an FCA-regulated second charge, second legal mortgage or loan, or bridging loan on a client’s main residence.
Due to the change in requirements, it has also become increasingly difficult to locate a lender who is willing to fund these types of second-charge loans, as many lenders are not able to accept the increased supervision and constraints (such as not being able to charge a valuation fee) and, as such, have decided to completely withdraw from this sector of the market. Potentially, the FCA now regulates all second-charge loans over £25,000 that are secured on an applicant’s own home. All loans of less than £25,000 are automatically regulated.
The few exemptions on loans over £25,000 are as follows:
- If the majority (over 50%) of the loan is to be used for business purposes, The business uses will often need to be fully documented, as it will not be enough for a borrower to say that the loan is for business purposes. Examples of business uses can be related to BTL or investment property purchases, commercial property issues such as investment into the premises or purchasing the freehold, cash flow problems, purchasing stock and machinery, business start-ups, company debts, end-of-year tax payments, etc. (providing this is not a personal debt). Business borrowing is available to individuals, sole traders, or limited company directors.
- If the client is a high-net-worth individual with an annual prove-able income of over £150,000 or assets (not including their own residence) in excess of £500,000, this will also be an exempt second charge loan or bridging loan. If the application is on a joint basis, then both applicants will need to satisfy the assets or income assessment test.
The new rules are viewed by lenders in a manner that means that even a rolled-up bridging loan that requires no monthly payments is no longer acceptable if a client has limited or no proof of income.