Loss of credit? Focus on the bridging sector – Mortgage Strategy
Private credit lenders have largely flown under the regulatory radar, until recently.
Their growing presence in the bridging market has arguably helped the sector become more responsive, more flexible and more competitive.
Yet, while some in the industry raised concerns, questions around funding structures, transparency and oversight largely went unanswered.
That all changed in February when specialist bridging lender Market Financial Solutions (MFS) collapsed amid allegations of financial irregularities and substantial debts — sending shockwaves through the market.
There are far too many lenders in the bridging market
The Financial Conduct Authority has since launched an investigation into the firm, while the Bank of England and the Prudential Regulation Authority are looking into the private credit and non-bank lending sector over concerns about its rapid growth as well as its ties to the wider financial system.
Where does that leave the bridging market? Have lenders and brokers become more cautious? And is it still feasible for parts of the sector to operate outside the regulatory framework?
Lasting impact
“The MFS collapse hasn’t shaken confidence in bridging or impacted borrower demand, but it has reminded the market that funding lines matter just as much as headline rates,” explains Aria Finance managing director Lucy Waters.
“Broker awareness of counterparty risk has increased, which is no bad thing. We’re seeing brokers ask more questions about lender stability, capital sources and funding structures before placing business.
“Clients want certainty that a lender will be there not just at the offer stage but throughout the life of the loan,” she adds.
In the immediate aftermath of the MFS collapse, says Waters, there were concerns that increased scrutiny from private credit providers could expose wider issues within the market, potentially leading to funding being withdrawn or further lender failures.
The current balance works effectively because it prioritises the speed and agility that commercial borrowers rely on
“Largely, those concerns have now subsided,” she believes. “The market has remained resilient, demand is still strong and most lenders have continued to demonstrate the strength of their funding models.”
Not everyone is convinced the worst is over. KIS Finance senior bridging consultant Sam O’Neill believes the full impact of the collapse is yet to play out.
“We saw a knee-jerk reaction from a lot of lenders, with some scrambling to reassess products or shout from the rooftops that they were still lending,” he says.
“It’s difficult to say if this was the lenders themselves or the funding vehicles behind them. Probably both.
“But when the dust settles, the medium-to-long-term effect this has had, I don’t think we’ve seen yet.”
O’Neill thinks the market will see a shift towards regulated providers that also transact unregulated lending activity.
“I hope it leads to increased scrutiny and, ideally, a dilution of lenders in an already saturated market. There are far too many lenders in the bridging market,” he says.
I believe the whole bridging sector should be regulated
O’Neill estimates there are around 20 regulated bridging lenders and around 100 unregulated providers, all with varying offerings.
“I genuinely think, if you had a panel of 10 decent lenders, you could place 90% of deals,” he says.
Waters, however, believes the rise of specialist lenders and alternative funding sources has been positive for the market.
“It’s created more competition, better products and greater flexibility for borrowers, allowing lenders to support increasingly complex cases that traditional banks often won’t consider,” she says.
“From a broker’s perspective, we’re seeing lenders solve problems today that simply wouldn’t have found a home a few years ago, which is helping more borrowers and investors.”
The MFS collapse has reminded the market that funding lines matter just as much as headline rates
Waters acknowledges that extra competition can sometimes encourage lenders to prioritise growth over discipline.
“Bridging works best when lenders maintain a clear understanding of risk and stick to strong underwriting fundamentals. Sustainable growth will always be more important than growth at any cost.”
Areas of growth
SPF Private Clients key relationship director of short-term finance Laura Toke says there has been a slowdown in completions since the collapse of MFS.
“[That’s] perhaps as a knock-on of all funding lines doing deeper dives, and fewer boots on the ground to do deals on the back end,” she suggests.
Although risk appetite appears to be softening in some areas, competition for lower-risk, vanilla transactions remains strong due to the number of lenders in the market, adds Toke.
Broker awareness of counterparty risk has increased, which is no bad thing
“We’re seeing more demand from investors for commercial property, houses in multiple occupation, multi-unit freehold blocks and mixed-use properties,” she says.
“Where borrowers are acquiring long-term income-producing assets, appetite from lenders remains strong.”
However, Toke notes that high-value single units and land with planning are trickier assets to fund, especially where refinancing and re-bridging are involved, as values are softening in some areas. Nevertheless, she believes there are still several potential growth areas.
“One of the biggest opportunities we see for both lenders and borrowers is auction finance,” she says, “as well as opportunities within the commercial sector. Areas such as social housing, supported living and care homes continue to attract investor interest and we expect this trend to continue.”
Discerning lenders
With regard to selectivity on property types, MT Finance director of bridging Raphael Benggio says lenders are becoming more discerning, but that doesn’t mean restrictive.
“It is about taking a pragmatic, commercial view rather than a rigid, tick-box exercise,” he says.
When the dust settles, the medium-to-long-term effect this has had, I don’t think we’ve seen yet
Benggio foresees further potential as the market evolves.
“We are seeing a distinct trend of resilient landlords pivoting and diversifying, particularly into the semi-commercial and commercial sectors where yields remain attractive.
“For lenders that possess the expertise to underwrite complex, multi-use properties quickly, there is significant opportunity to capture this growing market share. The primary risk remains market volatility and its knock-on effect on exit strategies, particularly as broader macroeconomic factors come into play,” he warns.
Wider implications
Although the market has so far proved resilient, the collapse of MFS has reignited discussions around regulation.
Separately, a debate is already taking place around the maximum term for regulated bridging loans. The FCA has proposed extending the current 12-month limit, a move that has divided opinion.
A defined term encourages both lenders and brokers to ensure a viable, realistic exit strategy is in place from day one
“I never understood why the FCA reduced the term to 12 months as it put more pressure on the applicant and the lender to panic,” says Positive Lending chief executive officer Paul McGonigle.
“Covid-19 was the first real trigger that a longer term was needed and, while most lenders acted fairly towards consumers, there was evidence that some had never changed their practices and were charging extension fees.
“The whole selling process seems more elongated now; it takes around six months on average to sell a home. If you are part of a chain, or selling a high-value property, there are additional layers of complexity to complete within that term,” he adds.
“If the lender is charging daily interest, does it matter if the term is extended to protect the consumer?”
We are seeing a distinct trend of resilient landlords pivoting and diversifying
Benggio, however, is in favour of maintaining the status quo.
“The 12-month limit functions as a clear parameter for short-term finance, simply because bridging is inherently designed as a swift, temporary solution,” he says.
“While market transactions can occasionally experience friction, a defined term encourages both lenders and brokers to ensure a viable, realistic exit strategy is in place from day one.”
Wider regulatory questions
The MFS collapse has also raised questions around how much of the bridging market should be regulated.
MFS, for example, operated as an Annex I firm, meaning it was registered for anti-money laundering supervision, but it was not authorised by the FCA nor subject to broader conduct or prudential requirements.
It is about taking a pragmatic, commercial view on property types, rather than a rigid, tick-box exercise
“I believe the whole bridging sector should be regulated,” says McGonigle.
“Some lenders have dual practices — treating clients differently for a regulated transaction compared to non-regulated. [Full regulation] would remove some lenders from the market, which I think is a good thing.”
Again, Benggio takes a different view.
“The current balance works effectively because it prioritises the speed and agility that commercial borrowers rely on. The market thrives because lenders have the flexibility to look at the commercial reality of a deal and adapt solutions where rigid regulatory frameworks might otherwise create roadblocks,” he says.
“When lenders maintain strong internal benchmarks and secure funding, and protect their market reputation, the industry naturally remains secure, responsible and effective.”
Bridging works best when lenders maintain a clear understanding of risk and stick to strong underwriting fundamentals
It is perhaps not the bridging product itself that is the issue but who is offering it, and under what level of supervision.
Although the market has remained resilient in the wake of the MFS collapse, the questions raised over how private credit lenders are structured and funded, and whether there are too many of them in the bridging sector, may prove too big to ignore.
This article featured in the July/August 2026 edition of Mortgage Strategy.
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