Peer-to-peer lenders are being limited from entering the residential mortgage market due to an anomaly with how professional indemnity (PI) cover works.
Lee Birkett, founder of P2P lender JustUs, said the platform is ready to offer residential mortgages after the Financial Conduct Authority (FCA) confirmed last year that home finance rules could be applied to the sector.
Lenders require PI cover to arrange mortgages but Birkett said companies are unable to provide it directly to the platforms as they say it is the individual investors who are backing the loan.
Read more: JustUs gears up to enter P2P mortgage market
“It is a real anomaly,” Birkett told Peer2Peer Finance News.
“The investor is the lender and is choosing the risk profile.
“Mortgage arranging isn’t what P2P is about, it is about matching lenders and borrowers.
“Putting residential mortgages into P2P is trying to put a square peg into a round hole.
“It is not the fault of the FCA but the regulations need some sort of exemption from the Treasury similar to credit unions or Homes England which arranges Hep to Buy loans.”
Birkett added that P2P lenders could help so-called mortgage prisoners obtain new loans but are being inhibited by this discrepancy in the regulations.