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Bridging loans are short term finance facilities, typically ranging from 1 month up to 1 year, that are secured against the value of property.

The property used as security can be houses, flats, bungalows, shops, industrial units, care homes, fitness centres, farmland, land with or without planning permission, etc.

Bridging loans are unregulated, unless the property being used is the borrower’s home, or the home of any immediate members of their family, then the facility needs to be set up as a regulated bridging loan.

What is a regulated bridging loan?

A bridging loan becomes ‘regulated’ when the loan is secured against a property that is currently occupied, or will be occupied in the future, by the borrower or any member of their immediate family.

A regulated bridging loan can either be first or second charge. This means it can either be the only/sole loan secured against the property (first charge), or, if there is enough equity in the property after a mortgage or any other secured loan, it can be placed ‘behind’ the first charge lender (second charge).

This type of bridging loan is regulated by the Financial Conduct Authority (FCA) and falls under the same regulation as a residential mortgage.

What is an unregulated bridging loan?

A bridging loan is ‘unregulated’ when the property being used as security is for business or investment purposes which will never be occupied by the borrower or any member of their immediate family. A bridging loan also becomes unregulated when it is taken out under the name of a company/business, instead of a person.

Unregulated bridging loans can either be first charge or second charge.

There are hundreds of bridging loan lenders, all of whom able to provide unregulated loans. They will lend to purchase or refinance:

  • Commercial Properties
  • Semi-Commercial - for example a shop with a flat above
  • Residential Houses or Flats - that are to be rented out, or refurbished and sold
  • Land – farmland, development land (with or without planning), etc

If the loan is to be secured against a borrower’s home, or holiday home, then the loan will need to be written as a regulated facility.

Most bridging lenders do not provide regulated facilities, so will have to decline any application that should be written on a regulated basis.

What to expect when applying for a regulated bridging loan

For a regulated bridging loan, you will need to deal with a regulated broker who will place your application through one of the regulated bridging lenders.

Expect:

  • To be issued with a Terms of Business letter
  • To have a detailed fact find carried out
  • Research into the most suitable product to be carried out – type of facility, term, amount, interest rate, other costs, terms and conditions of the loan.
  • Application for chosen product
  • A reasons why/recommendation letter

The underwriting criteria for a regulated bridging loan has more restrictions.

Many regulated lenders:

  • Limit, or only provide, 12 month loan terms.
  • Will only allow roll up interest – cannot make monthly interest payments
  • Exit routes are limited to refinance or sale – some even only except sale

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