Regulated vs unregulated bridging loans

When is a bridging loan regulated and unregulated and what does this mean? We explain what you need to know if you’re considering one.

Bridging loans can either be regulated or unregulated, depending on whether they’re used for residential or business purposes.

What is a regulated bridging loan?

Bridging loans that are secured on a property that is or will be the borrower’s home or that of their immediate family (as long as they will occupy at least 40%) are regulated by the Financial Conduct Authority (FCA).

This is to protect consumers, who are considered to be more vulnerable than businesses, by making sure they have clear information and advice from the lender or broker about the loan before they take it out. The regulations give them protection over and above the laws in place.

One of the most common uses for regulated bridging loans is to buy a new home before selling the previous one to avoid breaking a chain and stop the transaction falling through.

They can also be used to buy a home at auction as they can be arranged faster than a mortgage once you have successfully bid for a property – you usually have to complete on the property within 28 days of a traditional auction and will lose your 10% deposit if the mortgage funds don’t arrive in time.

They usually last for a maximum of 12 months and the interest can be “rolled up” and paid off at the end of the loan rather than monthly.

Regulated bridging loans can be first or second charge loans. A second charge is when there is already a loan, such as a mortgage, secured on the property. This poses a higher risk for the lender as the first charge lender has priority if the borrower’s debts need to be repaid from the sale of the property.

What is an unregulated bridging loan?

An unregulated bridging loan is one used for business purposes. A business is considered to be better able to understand the terms and conditions and what they are committing to than consumers because of their industry knowledge and experience, so doesn’t need the protection of FCA regulation.

If you’re taking one out as part of a business, you should take extra care when considering the implications of the loan and examining the contract and terms, especially if you’re relatively inexperienced.

Unregulated bridging loans might be used for funding a property refurbishment as an investment, buying a commercial property quickly, purchasing a buy-to-let property that needs work before it can be let and a buy-to-let mortgage can be taken out on it, or buying an investment property at auction.

What are the differences between a regulated and unregulated bridging loan?

Regulated and unregulated bridging loans work broadly in the same way, although you may be assessed differently when you apply for a loan for business purposes. The differences are mainly down to the protection you get, the speed at which they can be set up and the level at which they can be bespoke to you.

Consumers taking out regulated loans for residential purposes get the safety net of FCA regulation, although this doesn’t necessarily mean that unregulated bridging loans are more risky.

By not having to follow the FCA rules, unregulated bridging loans can be arranged faster than regulated ones as there is less paperwork and fewer checks involved. They can also be tailored more to the borrower’s needs. Both of these aspects are desirable when it comes to business transactions.

What are the risks of unregulated bridging loans?

As lenders of unregulated bridging loans don’t have to follow FCA rules on how the information about them is presented, such as the costs, repayment terms and penalties for non-repayment, there is a risk that it won’t be completely clear. Lenders may also not take as much care to explain the downsides of a loan to borrowers.

This means that if you’re taking out an unregulated loan you should scrutinise the terms and conditions extra carefully to make sure you’re happy with them.

It’s a good idea to speak to a specialist bridging finance broker to discuss the best option for your needs and find the best deal.

Compare bridging loans and rates

Table: sorted by monthly interest rate
Name Product Maximum LTV Loan term Loan amount Monthly interest rate
United Trust Bridging Loan
United Trust Bridging Loan
70%
1 month to 36 months
£75,000 to £25,000,000
0.48% to 1.1%
Hope Capital Bridging Loan
Hope Capital Bridging Loan
75%
3 months to 24 months
£50,000 to £500,000
0.54% to 1.05%
Octane Bridging Loan
Octane Bridging Loan
65%
1 month to 24 months
£150,000 to £25,000,000
0.55% to 1%
Lend Invest Bridging Loan
Lend Invest Bridging Loan
75%
3 months to 24 months
£75,000 to £25,000,000
0.55% to 0.94%
MFS Bridging Loan
MFS Bridging Loan
75%
3 months to 18 months
£100,000 to £0
0.65% to 1.25%
loading

Compare up to 4 providers

Overall representative example for regulated bridging loans
If you borrowed £258,000 over a 1-year term at 8.25% p.a. (fixed), you would make 12 monthly payments of £1,814.28 and pay £285,666.36 overall, which includes interest of £21,771.36, a broker fee of £995 and a lender fee of £4,900. The overall cost for comparison is 11.1% APRC representative.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you.

More guides on Finder

  • Bitcoin (BTC) price prediction 2021

    Your guide to the factors affecting Bitcoin’s value and what to look for when forecasting bitcoin price changes in the weeks and months ahead.

  • Agricultural mortgage

    What you need to know about getting a mortgage if you’re buying or refinancing a farm or farmland, including the factors lenders consider when you apply for one.

  • Mortgage for a pub

    Everything you need to know about taking out a mortgage to buy or refinance a pub. Find out where to get one, how to get the best deal and the factors lenders consider.

  • Mortgage for a hotel

    In-depth guide to taking out a commercial mortgage to buy or refinance a hotel. Find out how to get the best rates, factors lenders consider and what you need to apply.

  • Bridging loan vs commercial mortgage

    Find out if a bridging loan or commercial mortgage would suit you if you’re buying or refinancing commercial property and when a bridging loan can be a better option.

  • Sole trader loans

    Find out how to get a loan if you work for yourself, including which lenders offer business loans for sole traders.

  • Chain break finance

    Learn everything you need to know about chain break finance – a type of bridging loan that stops you losing your dream home if the sale of your existing one falls through.

  • Fix and flip

    Read our in-depth guide to fix and flip and how this type of property investment works, including the factors you need to consider, the risks to be aware of and how to finance it.

  • Commercial bridging loan

    Everything you need to know about commercial bridging loans. We look at when they’re useful, how they work and what to be aware of before taking one out.

  • Hard money loans: Short-term finance in the UK

    Learn everything you need to know about hard money loans – also known as bridging loans. Find out how they work, what they can be used for and their benefits and downsides.

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked
Finder.com provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and Terms of Use.

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site