Bridging loans can be either regulated or unregulated. Bridging loans for residential properties are regulated, whereas bridging loans for commercial purposes are unregulated. Some mixed-use properties may also be regulated, e.g. a shop with a flat above it.
Regulated and unregulated bridging loans are short-term, secured loan types suitable to ‘bridge the gap’ until you find a longer-term financing solution or have access to a lump sum after selling a property.
Regulated bridging loans
When taking out regulated bridging loans on residential properties, the bridging loan adviser and bridging loan lender are both regulated by the Financial Conduct Authority (FCA).
Possible ways to use a regulated bridging loan
A regulated bridging loan can be used for:
- Funding the purchase of your new home if you can’t sell your existing home first
- Renovating a property that you plan to live in but can’t get a mortgage until the property has been renovated
- Securing property at auction and can’t get a mortgage on time
In these scenarios, you can obtain a regulated bridging loan which will be secured against your home. If you can’t repay the loan, the lender could repossess the property.
An unregulated bridging loan may sound unsafe, but all it means is that these sorts of bridging loans don’t require FCA regulation.
The aim of the FCA is to protect consumers. If you are taking out a bridging loan on a property you won’t be living in, you won’t be seen as a consumer and therefore won’t be entitled to the same protection from the FCA.
For this reason, unregulated bridging loans have fewer restrictions and checks than regulated loans.
Possible ways to use an unregulated bridging loan
An unregulated bridging loan can be used for:
- A buy-to-let property
- A commercial property
- An investment property that needs to be renovated before being sold
Unregulated bridging loans are monitored by other industry bodies to ensure lenders follow certain standards. Lenders of unregulated bridging loans can join a number of organisations, including the Association of Short Term Lenders (ASTL), the Financial Intermediary and Broker Association (FIBA), and the National Association of Commercial Finance Brokers (NACFB).
These organisations will ensure that members follow specific codes of conduct, such as declaring all costs and associated fees upfront, treating customers fairly and responding to complaints on time.
With both regulated and unregulated bridging loans, lenders will assess your financial situation and will want to know your exit strategy to find out how you plan to repay the bridging loan.
Ensure you check the terms of the agreement and the fees of the loan. Always have a clear plan on how you plan to repay the loan before applying as bridging loans can be expensive.
It may be beneficial to speak to a bridging loan broker to help you figure out whether a bridging loan is the right choice and to find other possible financing options that might be available.