Brokers conducting unregulated short-term, commercial and buy-to-let loans have been warned that even if they do not plan to do regulated business next year, lenders could refuse to deal with them.
In a straw poll among specialist short-term, bridging and Buy-to-let lenders every single lender said they would refuse to accept unregulated business from unregulated brokers after the European Mortgage Credit Directive comes in next March followed closely by consumer credit in April.
Precise Mortgages, LendInvest, Funding 365, Bridgebank, United Trust Bank, Mint Bridging and Amicus all said they would require brokers to have full consumer credit broking permissions from April.
Gareth Lewis, head of bridging at Precise Mortgages, said: “I think it’s fairly clear that brokers will need credit broking permissions to do business after next April. Those who stay outside of that will find it difficult.
“The real onus is on the broker and the distributor because ultimately they are the ones who will be on the hook for the advice and whether they have placed deals in the right place.
“This isn’t new – a lot of the good brokers and distributors have always looked at the whole market place and provided evidence for why they made the decision in the first place.”
Kit Thompson, head of bridging at specialist distributor Brightstar Financial, said: “Non-Financial Conduct Authority regulated brokers are only going to be able to introduce limited company business to us. Even though bridging and buy-to-let might be non-regulated, there will be a limit to what they can introduce.
“For us that is a big change and will have a big knock-on effect on who we will accept introductions from.”
Liz Syms, Connect’s managing director, warned earlier this month that her network is seeing a slew of unregulated brokers who are overwhelmed by the volume and complexity of regulation that is about to hit the sector.
She said: “I don’t think there is enough awareness about just how many of the mainstream buy-to-let lenders won’t deal with brokers who don’t have full permissions after next year – even if the business doesn’t require fully regulated permissions the lender might.”
Several separate regulatory regimes come into force between March and April 2016 which affect the permissions needed by commercial, buy-to-let, second charge and bridging brokers.
The European Mortgage Credit Directive will see the creation of consumer buy-to-let meaning any “accidental” or first-time landlord who inherited a property to rent or any borrower using let-to-buy will need fully regulated MCOB advice.
Additionally brokers will have to decide whether to consider second charge loans alongside first charge lending and disclose to borrowers the fact they do not cover the whole of market if they choose against.
Second charge will also become a fully regulated activity requiring various sets of permissions depending on whether brokers choose to conduct business themselves, use packagers or refer leads to a specialist.
Under another regime, consumer credit regulation, brokers will require either full or limited permissions from the FCA in order to conduct, advise or refer consumer credit business.
Many brokers successfully got their interim permissions last year when supervision of consumer credit transferred from the Office of Fair Trading to the FCA following the former body’s closure.
But in order to get full permissions the FCA requires a much fuller disclosure of brokers’ business plans and scope of advice.
Limited permissions only allow for the referral of consumer credit leads to a regulated broker if those leads arise from a subsidiary business – as in the case of car finance leads referred by a car salesman.