On Monday, British bank Barclays said it is blocking its customers from using their debit and credit cards to make payments to crypto exchange Binance. The bank has been contacting customers who have used their cards on Binance in the past year and has advised them that they will be suspending payments until further notice.
The FCA, which is the UK’s highest financial auditing authority, issued a consumer warning on Saturday June 26, stating that Binance Markets Limited cannot undertake any regulated activity in the country.
Following the FCA’s warning over the safety and security of Binance, there has been increased scrutiny from customers, banks, and regulators alike. The move by Barclays is not an isolated decision but instead comes as part of a wave of international action from state authorities, who are becoming increasingly concerned by the rapid rise of crypto and its potential for increased money laundering and organised crime. On June 21, the Chinese Government announced it would be clamping down on cryptocurrency mining, an announcement that saw Ethereum and Dogecoin prices drop.
The FCA has also issued a consumer warning against Binance.com. The financial regulator has advised people to be cautious of advertisements that promise high returns on crypto asset investments. The move comes as part of a pushback from global regulators against crypto-currency platforms.
Binance is an online exchange where users can trade cryptocurrencies. The site offers its users a range of financial services and products and provides each trader with a crypto wallet where they can store digital funds. The online exchange also aids traders in their investment decisions through supporting programmes.
Binance Group was initially based in China but has since relocated to the Cayman Islands due to China’s increased regulation of cryptocurrency. Binance Markets Limited (BML_ is an affiliate firm of Binance, currently based in London.
The FCA has said that BML is not currently permitted to undertake any regulated activities within the UK without prior written consent by the FCA. The firm has been given until Wednesday to comply with the ruling, with the FCA also stating that no entity of the Binance Group has the authority, registration, or licence to conduct regulated activity in the country.
The FCA does not regulate cryptocurrencies, but it does regulate crypto assets. To advertise or sell cryptocurrency products in the UK, companies must be authorised by the financial regulator.
Andrew Megson, Executive Chairman at My Pension Expert, looks at the sources of distrust in financial services and how the industry can turn its image around.
Today, the topic of trust in financial services looms large. With decades of mis-selling PPI, investment scandals, and zero industry transparency, it is little wonder that many individuals have a hard time engaging with financial advisers.
This is a crying shame. Advisers play a vital role in helping people develop a tailored financial strategy and achieve their monetary goals – the current climate of economic volatility has only accentuated their importance.
The financial pressures brought on by COVID-19 have upended many people’s financial strategies. Individuals have been forced to dip into their savings or, in some cases, even bring forward their retirement date due to redundancy. Naturally one would assume that it would pay to consult a professional when re-evaluating retirement and investment strategies.
Yet, Britons are still reluctant to seek advice. According to research from My Pension Expert less than two thirds (38%) of UK adults ever sought the help of an IFA. Even amongst those aged 55-plus and approaching retirement age, this figure stands at only 46%.
Such figures are concerning. They suggest that many people are making complex financial decisions unaided. And without an in-depth knowledge of the industry, or various financial products, they might find themselves worse off in the long term. Clearly, urgent action is needed.
Adviser practices have certainly been questionable over the years, with little to no transparency surrounding how adviser fees were calculated, and many individuals in the industry working on commission and resorting to pushy sales tactics.
With decades of mis-selling PPI, investment scandals, and zero industry transparency, it is little wonder that many individuals have a hard time engaging with financial advisers.
Worryingly, My Pension Expert’s aforementioned survey revealed that almost one in five (18%) of individuals lost money following the recommendations of a financial adviser in the past. Likewise, a further 26% of UK adults said that they felt pressured into purchasing a financial product, despite not fully understanding what it was. And it these negative experiences that have shaped Britons’ opinion of advisers.
Thankfully, in 2012 the FCA took action to tackle unethical practices with the retail distribution review (RDR). This means that IFAs are now only able to offer fee-based advice.
But in spite of the great strides made by the FCA, the regulatory changes have not been enough to mend savers’ relationships with intermediaries. Indeed, many are steadfast in their belief that financial advisers will not act in their best interests.
As a consequence of such deep-rooted mistrust, many people prefer to make their own decisions about how to handle their pensions and investments.
This is troubling, as there are such a vast array of savings and investment products on the market for savers to choose from, individuals may fall victim to rushed and ill-informed decisions.
Indeed, too much choice can sabotage the ability to make well-reasoned and logical decisions. Research in academic settings, including a notable study conducted by Columbia University suggests that this is the case, as the group of subjects with more choices made knee-jerk decisions, compared those with fewer choices, who made their choices based on greater reason and individual preference.
Apply these insights to the world of financial planning, and problems start to rear their head. Our survey uncovered that the majority (65%) of individuals prefer to free guidance that can be found online, instead of seeking out independent financial advice. And although many will have a good grasp of their finances, relying solely on self-governed advice can be particularly harmful in the long-term.
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Clearly, the industry needs to do more to repair its damaged reputation.
In addition to the FCA’s work, a good start in this regard would be for the regulatory body to make the benefits of independent financial advice more widespread. Take for example, the fact that regulated financial advisers are obligated to reinstate an individual’s original financial position if their advice leaves them worse off. Few savers know this, and many might be more willing to take advice safe in this knowledge.
Further to this, the results of My Pension Expert’s survey suggests that individuals also want to see the FCA come down even harder on unscrupulous advisers, with the overwhelming majority (78%) of respondents stating that they wanted to see harsher punishments for IFAs engaging in unethical practice. Meanwhile, a similar number (73%) believe that tighter regulations surrounding independent financial advice are in order.
Ultimately, the financial services industry has some work to do when it comes to restoring its reputation. Particularly as the UK progresses along on its roadmap out of lockdown and the economy eventually stabilises, savers are likely to remain in need of regulated financial advice. Although it will not happen overnight, so long as the industry takes steps to improve transparency and public understanding, I have every confidence that individuals will be more willing to seek advice to secure their financial futures.
London-based fintech unicorn Revolut has started to apply for a bank charter in the US, the firm announced on Monday.
On the first anniversary of its US launch, the company submitted a draft application with the Federal Deposit Insurance Corporation (FDIC) and the California Department of Financial Protection and Innovation, the first step in the banking license application process.
“A US banking license would ultimately enable us to provide US customers with all the essential financial products and services they can expect from their primary bank including loans and deposits,” Nik Storonsky, co-founder and CEO of Revolut, said in a statement.
“We’re on a mission to build the world’s first global financial superapp, and pursuing a US banking licence is an integral part of the journey.”
Revolut was granted an EU banking license in Lithuania in December 2018, allowing it to offer banking services in Central Europe. It applied to the FCA and the Prudential Regulation Authority for a UK banking license in January.
The startup also intends to launch its business accounts in all 50 US states. These accounts allow companies to make free money transfers in 29 currencies at the interbank exchange rate, among other features.
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Since launching in the UK in 2015, Revolut has built a customer base of more than 15 million across nearly 40 different countries. Its flagship products include an app-linked debit card that allows users to spend different currencies at the interbank exchange rate with low fees attached.
Revolut’s fintech peers are also seeking bank charters in the US. In February, Brex announced that it would apply for a bank charter in Utah, while Varo Bank obtained a license last summer.
The UK’s financial watchdog issued a statement on Monday warning prospective investors about the risks of putting their money towards cryptoassets such as Bitcoin.
The Financial Conduct Authority (FCA) encouraged customers to understand the financial risks of cryptoassets and schemes involving them prior to investing, given that they were unlikely to be protected under the financial services compensation scheme or the financial ombudsman service, which help UK investors reclaim their money when a company collapses.
“The FCA is aware that some firms are offering investments in cryptoassets, or lending or investments linked to cryptoassets, that promise high returns,” the regulator said, noting also that some crypto investment firms may be overstating the potential payouts of cryptoassets or understating the risks involved.
“Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money,” the organisation continued. “If consumers invest in these types of product, they should be prepared to lose all their money.”
Bitcoin has experienced an unprecedented 300% rally since October 2020, reaching new milestones regularly in the final weeks of 2020 through to the new year. Last week, the cryptocurrency’s total value passed $1 trillion for the first time in history.
Analysts’ warnings of an overdue price correction came to fruition over the weekend as Bitcoin underwent its sharpest two-day fall in nine months, falling as much as 21% down to $32,389 before stabilising around the $35,650 mark on Monday (around 12% down from its $41,000 high).
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In addition to its warning for investors, the FCA issued a reminder to firms that new rules which came into force on Sunday now require crypto companies to register with the organisation and carry out money laundering checks.
Paul Marcantonio, Executive Director for the UK & Western Europe at ECOMMPAY, offers Finance Monthly his predictions for open banking and the fintech sector in 2021.
The UK leads the charge in open banking; 2019 bore witness to a surge of growth in the country’s open banking ecosystem, when UK open banking hit one million users, regulated providers hit 204 and there were 1.25 billion API calls. It is evident that open banking has played a significant role in consolidating London’s place as a global leader in the fintech industry, comparable only to New York. With Brexit looming, there are many unknowns on the road ahead for UK businesses and their ability to deliver open banking services to the wider EU market after 31 December. Will open banking be affected by Brexit? And what is the outlook for the UK fintech sector in the new year?
Many companies are worried about maintaining the smooth digital experience that the modern consumer now prioritises post-Brexit. Looking ahead, UK businesses will lose their ‘passporting’ rights to do business across the EU, with organisations in the EU suffering similar barriers when seeking to operate in the UK. To overcome this barrier, many firms have created bases in the EU, while companies are also applying to the FCA for temporary permission to operate in the UK.
In order to minimise the disruption to open banking services post-Brexit, the FCA has said that third-party providers (TPPs) will be able to use an alternative to eIDAS certificates to access customer account information from account providers, or to initiate payments. eIDAS certificates of UK TPPs will be revoked when the transition period ends on 31 December. This means that TPPs have a compliant way to access customer information and ensures any changes as the UK leaves the EU will be smooth.
Businesses are having to audit their suppliers, as well as their payment service providers, to ensure they have all the necessary licenses to operate in the EU. Many companies are also building separate EU entities so that they can function in the EU under any Brexit agreement.
Many companies are worried about maintaining the smooth digital experience that the modern consumer now prioritises post-Brexit.
The role of open banking will only increase after Brexit, since the open banking agenda cannot be achieved by existing major banks. Open banking allows banking services to digitise so that consumers gain access to more choice than ever before, and extends the market to new entrants able to offer products and services that banking incumbents do not.
Furthermore, regulatory intervention serves to foster competition in the finance industry and is evidently necessary. The EU Payment Services Directive 2 (PSD2) was brought in during September 2018, and brought open banking requirements in across the EU, going further than the Retail Markets Investigation Order 2017 (CMA Order) in the UK which mandated that the biggest banks provide customers with the ability to share data with authorised APIs. The CMA Order revealed how regulation can motivate banks to modernise their services, but PSD2 gives consumers more choice and protection in opening up payments to third parties so they can access a variety of options when deciding how to pay and with whom to share their data.
Consequently, PSD2 will be a crucial mechanism for the UK financial services industry in order to remain competitive in Europe and across the world. The UK will therefore need to ensure it complies with EU regulations if it is to cement its position as a leader in open banking and continue to let the sector thrive. This means the UK is likely to align with EU regulation where it meets the needs of its own internal market, and is predicted to use regulation as a blueprint for its own but adjusted to meet its separate needs.
Regardless of the nature of the UK’s relationship with the EU, many experts suggest the UK open banking standard is broader than the EU’s PSD2, and therefore has potential to be utilised as a blueprint for other countries worldwide. Although the route forward for open banking is not clear, what is evident is that open banking technology will carry on driving innovation and competition within the financial services industry, with the consumer able to access more convenience and choice.
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The UK will make routes to economic growth a priority, which means open banking must play a major part in this. After the UK agrees technical standards and governance, open banking can present a competitive advantage via open APIs and enable the fintech sector to benefit from sustained growth into 2021 and onwards.
The modern consumer wants efficiency, with services and products on demand. As such, open banking must be looked to when seeking to cater to the consumer. For example, cross-border payments, innovation around APIs, and automation, are all enabling companies to simplify complex payment processes, and make the experience quicker and easier, as well as allowing for easy scaling.
Payment solutions such as ECOMMPAY’s utilise open banking technology to enable consumers to initiate payments to merchants without the need for debit or credit card transactions, and are crucial in expediting efficient payments within and across borders, customised according to localised requirements.
Brexit has been on the horizon for several years now, allowing businesses time to establish contingency plans. As long as companies have invested wisely in their payment infrastructure, they will be in a good place to ensure sustainable growth for years to come.
The Financial Conduct Authority (FCA) has announced that it will extend payment holidays on credit cards, personal loans, pawnbroking and motor finance to support borrowers affected by the COVID-19 pandemic.
Consumer credit customers who have not yet had a payment deferral under the FCA’s July guidance may request one that will last for up to six months, the UK regulator said in its release. At the same time, borrowers who have already had one deferral will be allowed to apply for a second.
“We will work with trade bodies and lenders on how to implement these proposals as quickly as possible, and will make another announcement shortly,” the FCA said, adding that lenders would soon provide further information on what this will mean, and that consumer credit customers should not contact their lenders yet.
Mortgage payment holidays, which had been slated to end in the UK on 31 October, will also be extended under much the same conditions. Borrowers who have not yet had a payment deferral will be allowed to request one that will last for up to six months. Borrowers who already have a deferral can extend it to a maximum of six months.
The FCA warned: “It may also be in the interests of mortgage borrowers who expect to have long-term financial difficulties to agree other forms of tailored support with their lender.”
The regulator’s new guidance comes ahead of an England-wide lockdown that will come into effect on Thursday and last for a month, ending on 2 December, in an effort to curtail the second wave of COVID-19 infections. Non-essential retailers and hospitality services will be closed, and travel will be subjected to further restrictions.
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However, educational facilities such as schools and colleges will be kept open.
“We’re not going back to the full-scale lockdown of March and April. The measures that I’ve outlined are far less primitive and less restrictive,” said prime minister Boris Johnson on Saturday. “Though, I’m afraid, from Thursday, the basic message is the same: Stay at home, protect the NHS, and save lives.”
Goldman Sachs has been ordered to pay $2.9 billion in fees and penalties to settle charges over its involvement in the 1MDB scandal.
The Financial Conduct Authority (FCA) and the Bank of England’s Prudential Regulation Authority (PRA) announced late on Thursday that they would fine Goldman Sachs £97 million for its risk management failures connected to the scheme, forming part of a global settlement with regulators across the US, the UK, Hong Kong and Singapore.
The settlement includes the largest fine ever issued under corporate criminal bribery law.
The Department of Justice claimed that the bank ignored signs of fraud from some of its senior bankers in a scheme that saw the Malaysian economic development fund being defrauded out of around $2.7 billion.
Goldman Sachs had earned $600 million in fees for helping 1Malaysia Development Berhad raise over $6.5 billion to be invested in Malaysian energy development. Much of this money was looted, with over $2.7 billion diverted towards private purchases of luxury real estate, art, yachts, and in one instance to help finance the 2013 film “The Wolf of Wall Street”.
Authorities alleged that senior staff at Goldman Sachs were involved in the embezzlement, with at least one former banker involved in the case having pleaded guilty to charges. Goldman Sachs’ Malaysian branch agreed to a $3.9 billion settlement with Malaysian prosecutors in July, and on Thursday pleaded guilty to conspiring to violate US anti-bribery laws.
UK regulators focused on the bank’s alleged failure to adequately investigate signs of misconduct among its staff when they came to light. “When confronted with allegations of bribery and staff misconduct, the firm’s mishandling allowed severe misconduct to go unaddressed,” said Mark Steward, the FCA’s executive director of enforcement and market oversight, in a statement.
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“There is no amnesty for firms that tackle financial crime poorly, and the size of GSI’s fine reflects that.”
Goldman Sachs CEO David Solomon addressed mismanagement at the bank in a statement on Thursday. “We recognise that we did not adequately address red flags and scrutinize the representations of certain members of the deal team, most notably Tim Leissner, and the outside parties as effectively as we should have,” he said.
To pay the fines levelled against it, the bank is seeking to clawback $76 million in compensation paid to former staff connected with the 1MDB case. In addition, its board is cutting long-term share deals for former executives and cutting current executives’ pay by $31 million.
No matter which area of finance or business that you operate in, knowledge of the regulatory climate that you work in is essential. If you are working in the UK, which has one of the world's largest financial services industries and is home to many of the world's most important financial institutions, then you will need to become acquainted with the Financial Conduct Authority (FCA).
This is the government body that is responsible for the regulation of any and all financial services activities that take place in the UK or involve UK-based companies, individuals, and entities. They create and regularly update the framework and regulations governing areas such as trading, banking, currency, accounting, and dividends, to name just a few.
Falling afoul of the FCA can not only be ruinous for your business and career plans, but it can also land you in prison. Furthermore, you will not be able to legally conduct financial services activities in the United Kingdom without the approval of the FCA. With that in mind, let's summarise what the FCA actually does and how their remit affects you.
The most important role of the FCA is to prevent misconduct by financial services companies. They will investigate and enforce against classic types of misconduct such as insider trading and shadow-banking, but that's not all. They also work to prevent anti-competitive behaviour such as monopoly building, the mis-selling of financial products, and any attempts at market manipulation.
The FCA also helps financial services companies by providing them with a badge of legitimacy. For example, if you are looking for a qualified UK CFD broker service, you will find that the most well-regarded companies proudly advertise that they are regulated by the FCA. If a company is regulated by the FCA, then potential customers and clients can know that they are trustworthy and abide by rigorous ethical standards.
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The FCA is a massive organisation with thousands of employees and an annual budget of £600 million. Much of these resources are directed towards giving essential legal and compliance advice to the 58,000 companies that the FCA is responsible for regulating. This service is extremely valuable for smaller companies that might not have the resources to fully navigate the regulatory environment on their own. In a business environment where only the top dogs can afford a legal team of their own, the advice provided by the FCA can be a life-saver.
The FCA also has powerful enforcement mechanisms and can launch their investigations into companies and individuals, rather than simply referring potential incidents of misconduct to the police. As an arm of the UK government, the FCA reserves the right to investigate any person or entity that they have a reasonable suspicion of being guilty of financial crime. Investigations launched by the FCA can and do lead to the suspension of licenses, multi-million-pound fines, and the arrest and imprisonment of those found guilty of a crime by a British court. That's why compliance is crucial.
If you want to do business in the UK, joining the FCA and paying a membership fee is definitely a worthwhile pursuit. The cost of applying for FCA regulation currently stands at £1500, but this is a worthwhile investment.
Tiba Raja, Director at Market Financial Solutions, offers Finance Monthly her insight into the pandemic's impact on the lending market.
Economists and politicians are currently grappling with the question of how to bring about a post-pandemic economic recovery for the UK. So far, the government has introduced policies to stimulate investment, productivity and economic growth to this end. While these reforms have delivered measured success, more works need to be done. Businesses need to take a step back and understand how the pandemic has affected their respective industries.
This is particularly important when it comes to the lending market. Any attempt to support the economic recovery of the UK must include measures that support property investment. For this reason, I have listed below what I see as the three main ways COVID-19 has affected the lending market.
One key trend is the speed in which borrowers are now needing their loans deployed to ensure they can complete on a property transaction. Recent government intervention, namely the stamp duty land tax (SDLT) holiday, has resulted in increasing competition and rising house prices. The first Nationwide house price index (HPI) following this policy’s introduction showed an annual 1.5% rise in general house prices, in contrast to the 0.1% decline the month prior.
When coupled with the fact that the SDLT holiday ends on 31 March, 2021, borrowers are keen to act quickly to reduce their chances of losing out on potential property opportunities. What’s more, there is likely to be a surge in activity in the final month that the SDLT holiday is in place. This means that lenders have to act quickly and ensure they have access to in-house credit so that loans can be deployed as soon as is viably possible.
When coupled with the fact that the SDLT holiday ends on 31 March, 2021, borrowers are keen to act quickly to reduce their chances of losing out on potential property opportunities.
In the months preceding COVID-19, the number of specialist financing firms entering the market was growing. As more and more brokers and borrowers became aware of the benefits bespoke loans could offer, demand for such services grew, and many new firms were keen to meet this demand.
However, as the reality of the pandemic hit, many of these firms found themselves unequipped with the experience needed to properly navigate these choppy waters. Established lenders, on the other hand, were able to rely on the quality of their services and the strength of their client-broker relations, leaving them as the only option for those seeking fast finance during the lockdown.
Specialist lenders that managed to continue through past lockdown are now experiencing a newfound appreciation of their services, a trend unlikely to end anytime soon. After all, borrowers and brokers benefit from specialist lenders due to their ability to deploy loans quickly and also tailor their products and services to the individual needs of each client.
Finally, it is being reported that the those who are taking advantage of the mortgage payment holiday scheme are struggling to take on new debt. Given that the Financial Conduct Authority made it especially clear at the time that participation in this scheme wouldn’t affect one’s credit rating, the fact that some applicants have reported traditional lenders denying mortgage applications has left many prospective buyers worried and confused.
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Of course, it is understandable that in these uncertain times, lenders would view a failure to meet previous mortgage payments as a negative mark on an applicant’s application. However, given the completely unprecedented nature of the times we now live in, lenders should not be penalising those that were simply following advice and taking advantage of a government-backed scheme. What is needed is for lenders to properly assess each application on a case by case basis before making a final decision.
Ultimately, I am optimistic that the lending market will make the changes needed to properly equip itself for the current climate. The property market is experiencing a mini boom, which is positive news for all those involved in real estate, including lenders. I look forward to seeing a sector primed and ready to play a leading part in the UK’s economic recovery.
So, what does Wirecard’s collapse mean for the future of app-based business banking? Is it all bad news? First, let’s look at a bit of the background on app-based business banking to put the collapse of Wirecard into some kind of perspective.
During the past five years or so, a host of digital banks have entered the market to challenge the traditional high street players. Indeed, companies have never had so much choice when it comes to choosing a business bank account.
Many of these challenger banks do not have a standard banking licence but instead, operate under the terms of an e-money licence. E-money licences for Payment Services and Electronic Money companies are authorised and regulated by the Financial Conduct Authority (FCA) but represent a more straightforward – and significantly cheaper – form of licensing than a full banking licence.
E-money licences are more restricted than full banking licences – the chief limitation being that challenger banks with only an e-money licence may not hold customer deposits on their own balance sheets but must do so in a separate trust account, typically maintained by a fully authorised and licensed bank.
During the past five years or so, a host of digital banks have entered the market to challenge the traditional high street players.
Wirecard was founded in 1999 with headquarters in Munich, Germany, and a subsidiary in the UK, running its business as a digital payment services provider. According to an item in the New York Times on 19 June 2020, it grew quickly, attracting hundreds of thousands of leading merchants expanding their contactless payments businesses – global companies such as Visa, Google Pay and Apple Pay, together with fintech start-ups such as Curve, Pockit, Revolut, and Soldo.
As a payment services provider, Wirecard operations are conducted in Europe under the terms of an e-money licence, rather than full banking licence, holding customer deposits in separate trust accounts.
The Wirecard scandal was sparked by news that the German parent – Wirecard AG – was unable to locate €1.9 billion of customer deposits held in those trust accounts. In response to the scandal, a plummeting share price, and no apparent means of tracing and recovering the missing billions, Wirecard AG filed for insolvency.
In the immediate aftermath of the scandal breaking, the FCA temporarily suspended the UK arm of the company’s operations, Wirecard Card Solutions – also known simply as WCS. Straight away, therefore, scores of those fintechs in this country which have relied on Wirecard’s payments services had to suspend the accounts of millions of individuals and small businesses in the UK.
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Looking to the longer-term – rather than the immediate aftermath – however, it must be remembered that the German Wirecard AG and the UK’s Wirecard Card Solutions are quite separate and independent companies. As the website Sifted noted in its story on 26 June, the UK arm of the group is sufficiently independent to have its own board, regulatory regime, and accounting standards. Neither is it financially dependent on its German-based namesake – but recorded a pre-tax profit of well over £2 million in 2018.
While Wirecard accounts were only frozen for a few days and business deposits were safe, the impact on consumer confidence is likely to be longer-lasting. Deposits at institutions that hold a full banking licence are protected by the Financial Services Compensation Scheme (FSCS) up to an amount of £85,000, so expect to see businesses seek the safety of fully licenced banks that provide FSCS protection. In fact, Barclays has revealed that it's already seen an increase in deposits since news of the Wirecard scandal broke.
A number of app-based digital banks, such as Revolut and Cashplus, had already announced that they were applying for full banking licenses before Wirecard's collapse. As the sector matures, expect more to follow.
When searching for your dream home, you will often require a large amount of money to ensure a quick purchase.
If, for example, you intend to move to a new house and have found the home you want at a bargain price, but your current home is not selling as fast as you would have liked and you don't have the deposit for the new purchase until the existing home sells. This can put you in a sticky situation, and you are likely to lose the house to another buyer unless you can find the money quickly.
So, what can you do? If friends and family are not an option, the answer is to get a loan. You can try to go to the bank for the loan, but the process may take weeks due to the red tape. Another solution is getting a bridging loan.
Hanan Shapira, director of Property Finance Partners says "bridging loans in the last few years have begun to be more popular for homeowners looking to purchase a new residential property."
Bridging loans are specialised short term finance, typically acquired for between 3 months to 12 months. One of their advantages is the speed at which an application is processed. One can go from applying for a loan to money in the bank in as little as a week.
To get a bridging loan, you will have to have a property to be put up as security against the loan. You can borrow up to 80% loan to value (LTV) on the equity within your property.
Bridging loans are specialised short term finance, typically acquired for between 3 months to 12 months.
There are many uses of bridging finance such as developments, buying a property at an auction, buying uninhabitable properties or properties that require refurbishment for businesses and for buying residential homes.
When you obtain the loan, you can use the money to put down a deposit for the new home, and then once your existing home is sold, you can then repay the loan. This is known as "bridging the gap." It is a common use of bridging loans and works well in the right scenarios.
If the security offered is your current residence, the loan is automatically a "regulated" bridging loan. That means the loan is regulated by the FCA (Financial Conduct Authority). Regulated loans carry an extra level of protection; consumers are protected under the MCOB(Mortgage Code of Business) rules.
If the bridging loan is obtained against commercial property, it is likely to be unregulated.
Your first thought may be from the bank, but the majority of high street lenders don't offer bridging loans. The banks discontinued offering bridging loans after the crash in 2007-08, due to stricter regulations on unregulated home loans.
There are specialist lenders who provide bridging loans in the market, made up of hard money lenders and private funds. You will need to approach one of these lenders and package an application to them.
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Something to take into consideration is the costs involved in bridging finance. Relevant fees are broken down below:
The bridging loan market is quite a competitive currently in the UK, which has lowered interest fees considerably. It is advisable to find a few lenders and to check what they have to offer.
One way of saving you time and money is to use a broker. A broker can package your application in the right way as well as find you the best deal in the market, as they will have access to many lenders.
