From purely a regulatory point of view, bridging loans fall into either of two categories, either they are regulated or unregulated loans, and therefore defined under the umbrella of either regulated mortgage contracts or unregulated mortgage contracts.
If they are unregulated, a lender that is itself regulated can provide an unregulated bridging loan in addition to providing regulated bridging loans, but a lender that is not regulated cannot lend or enter into a regulated bridging loan mortgage.
I am going to cover what might happen if a non-regulated lender provides what is, or what should be a regulated bridging loan mortgage in a future post.
The background to this is that up until March 2016, loans to individuals which were first charge loans – that is where the lender is first in the pecking order to take the security pledged in order to have its loan repaid by ‘forcing’ a sale – were regulated by the Financial Conduct Authority, but ‘second-charge’ loans were not. The FCA had been working on bringing second charge mortgages into a regulatory framework prior to March 2016, but an event in Europe, a bill called the Mortgage Credit Directive forced a change upon the UK regulation, so since 21 March 2016, certain second-charge mortgages are regulated.
The rules that apply to the UK mortgage regime, emanating from the Financial Services and Markets Act 2000 (FSMA), are contained in the FCA’s Handbook. Alongside the Handbook is a huge document called the Perimeter Guidance manual, or PERG for short. PERG provides the FCA’s guidance on how the rules are to be interpreted.
The Handbook starts on the basis that first and second charge mortgages are either regulated, or unregulated. If they are regulated, only regulated lenders can enter them, and the officers, brokers and anyone involved in the regulated mortgage must be Authorised. Authorised is capitalised here because it is a Specified term under FSMA, as is Specified. More on this in a later blog.
The relevant chapter in PERG is 4: Guidance on Regulated Activities Connected with Mortgages.
4.2.1 Requirement for authorisation or exemption ………………………………………………………………………………………..
In most cases, any person who carries on a regulated activity in the United
Kingdom by way of business must either be an authorised person or an
exempt person. Otherwise, the person commits a criminal offence and
certain agreements may be unenforceable.
Under PERG a contract is not a regulated mortgage contract if it is:
a loan to a commercial borrower, where the charge is taken over a business premises (or where less than 40% of the property under charge is used for residential purposes).
There are a couple of nuances, which I will discuss in future posts, linked to this one. In future posts, I will look at Regulated Mortgages, before turning to other issues regarding the protection of individual’s rights, under Conduct rules.