Bridging loans are divided into two categories: regulated and unregulated. Here, we focus on regulated bridging loans and how to secure one.
Are bridging loans regulated by the FCA?
The majority of bridging loans are unregulated by the Financial Conduct Authority (FCA), as they are typically used by property investors, landlords, and for business purposes, similar to investment mortgages. This unregulated status allows for greater flexibility in lending terms.
However, regulated bridging loans are available in specific scenarios. These loans are FCA-regulated, providing borrowers with protections equivalent to those of a residential mortgage. Protections include safeguards against mis-selling and other unfair practices, ensuring that borrowers receive appropriate advice and products for their circumstances.
Regulated bridging loans are most often used when the property involved is, or will be, the primary residence of the borrower or their immediate family.
What makes regulated bridging different?
Regulated bridging loans differ from unregulated ones primarily because they provide FCA protection and are used for agreements involving residential property. In contrast, unregulated bridging loans are typically for commercial or investment purposes.
If you need finance to buy or renovate a property where you or your family plan to live, or if the loan will be secured against your primary residence, a regulated bridging loan is required.
Here are some example scenarios:
- Renovating an Unmortgageable Property: Financing to make a property habitable so you can live in it.
- Buying a Home at Auction: Quickly securing funds to purchase a residential property at auction.
- Chain Breaks: Bridging the gap when a property chain collapses, enabling you to proceed with your purchase.
- Renovating Your Current Home: Accessing funds for significant improvements or repairs to your primary residence.
These loans are specifically tailored to meet the needs of homeowners and ensure compliance with regulatory requirements for residential transactions.
Unregulated bridging loans are primarily used for investment purposes and are not subject to FCA regulation. They offer flexibility for borrowers and are commonly utilised in the following scenarios: Expanding Buy-to-Let, Property Flipping Commercial and Residential Property Investments:
Eligibility criteria
The eligibility criteria for regulated bridging loans are similar to those for unregulated loans but tend to be stricter due to FCA regulations. Below are the main requirements:
- Residential Purpose: To qualify for a regulated bridging loan, at least 40% pf the property's floor space must typically be used as residential accommodation.
- Exit Strategy: Both regulated and unregulated bridging loans require a clear exit strategy.
- Deposit requirements: Regulated bridging loans often have stricter deposit requirements.
- Credit History: Borrowers with adverse credit can still be approved for regulated bridging loans, but stricter scrutiny may apply compared to unregulated options.
These requirements ensure compliance with regulatory standards while providing the flexibility needed for short-term financing solutions.
How to get a regulated bridging loan
Follow the steps below to take the first steps towards a bridging loan application:
Ready your exit strategy: A well-prepared exit strategy is crucial, as your lender will closely evaluate it before approving your bridging loan. To strengthen your application, ensure you have clear evidence to support your proposed exit plan.
Gather the Required Documentation: Being prepared with all necessary paperwork can streamline the bridging loan application process and save valuable time. Ensure you have the following: Photo ID, Proof of Address, Pay Slips. Having these documents readily available helps avoid delays and ensures your application progresses smoothly.
Speak to a broker: Securing regulated bridging finance can be challenging due to the limited number of lenders in this market. Working with an experienced bridging loan broker can significantly improve your chances of success.
Available lenders and rates
There are fewer lenders offering regulated bridging finance because many providers are unable to operate within a regulated framework. However, there are still options available, including:
- Together
- West One Loans
- United Trust Bank
- MT Finance
- Glenhawk
Several high street banks also provide regulated bridging loans, including:
- NatWest
- HSBC
- Santander
- Barclays
In addition to these, broker-only lenders and exclusive deals are accessible through a bridging finance broker. They can compare all available regulated bridging loans on the market to help you find the best option tailored to your needs.
Securing favourable rates for regulated bridging loans can be more challenging due to the limited number of lenders and the stricter rules imposed by the Financial Conduct Authority (FCA). These regulations often restrict lenders' ability to offer bespoke terms, making broker expertise even more valuable in finding competitive deals.
The best way to find a competitive rate is through a specialist bridging finance broker.
Frequently Asked Questions
The primary advantage of regulated bridging loans is the protection provided by the Financial Conduct Authority (FCA). This ensures you are safeguarded against poor advice or the mis-selling of a bridging finance product, offering a significant safety net.
While regulated bridging loans may not be as quick to arrange as unregulated ones due to stricter checks, they are still far faster to secure than traditional mortgages. This makes them a practical option for time-sensitive transactions involving residential properties.