Understanding Regulated Bridging Loans

A little while ago, bridging loans were considered a niche market. This is why they were fairly difficult to get. Nonetheless, this has changed recently, as the bridging loan market has been diversified and more and more lenders provide this lending alternative.

Nonetheless, before you consider getting such a loan, you might want to find out what it entails exactly.

In this article, we will focus our attention on defining bridging loans so that you can make an informed decision prior to borrowing money.

Regulated Bridging Loans

What Is a Regulated Bridging Loan?

First things first: we should start with defining regulated bridging loans. In essence, a regulated bridging loan is a type of short-term financing, which is backed up by security.

Usually, security is a property. To understand the concept better, we should simply look at the name of the loan: a bridging loan compensates a gap – a final gap in our case.

This form of financing is usually a “short-term solution” if you don’t have the funds to cope with all your expenses at a given time.

That is to say, you have the bridging loan until you get more permanent funding at your disposal. This funding may become available to you by selling a property, having a partner invest in your business, a funding release, and the list may go on.

In regard to the size of the loan, you should know it varies as well. But usually, this will depend on the lender you’re collaborating with.

This is why it makes sense to consider several alternatives before sealing the deal, so to speak.

Is This Type of Loan Right For You?

Considering that you want to purchase a property at an auction, and you plan on refurbishing it, this means you need access to financing.

But when it comes to properties that require renovation and work, getting financing might not be the easiest thing to do – quite the contrary.

Aside from this, if you want to make sure that the property doesn’t slip through your fingers, you need to get the money relatively fast. This isn’t the case for mortgages, though, as the process is rather lengthy usually.

This is what makes a bridging loan a good option for purchasing property that needs renovating, which you can sell or rent afterwards.

But there is something else you should consider – namely the difference between regulated and unregulated bridging loans, which we’ll focus on in the forthcoming paragraphs.

When Is a Bridging Loan Regulated?

Regulated Bridging Loans

When you’re looking for bridging loans, you’ll stumble across two alternatives – unregulated and regulated bridging loans. What is the main distinction between the two? Or, better said, when is a bridging loan regulated?

Regulated loans must be in accordance with the Financial Conduct Authority (FCA) rules and regulations. This is why many people consider getting an FCA regulated bridging loan, as it is a better alternative in some cases.

In addition to that, normally, a loan is regulated when it is secured against property you plan to live in. Concurrently, such a loan offers protection to consumers, providing a guarantee that the loan is appropriate for the needs of the borrower.

On the other hand, when a loan is secured against an investment property, this means that it could also be unregulated – just as it is the case we outlined above.

That is to say, if you secure the loan against a property you intend to rent or to sell in the foreseeable future, this will make the loan unregulated.

In other words, the purpose of the loan determines whether it fits within the specifications of FSA regulation. On the other hand, as a borrower, you shouldn’t be concerned when it comes to unregulated bridging loans.

That doesn’t mean that they are anything short of professional. Therefore, if you were wondering what makes a bridging loan regulated, this would be the main distinction between the two categories.

Is a Bridging Loan Right for Me If I Want to Purchase a House?

Usually, a bridging loan is appropriate for purchasing both commercial and residential properties. That is to say, you might consider it if you are a private owner, investor or developer.

For one thing, if you usually make investments at auctions, a bridging loan will most likely be a suitable alternative for you.

Auctions entail acting quickly and making snappy decisions. Therefore, this might be a good option for you.

Mortgage or Bridging Loan?

On a different note, if you don’t want to choose a mortgage, a bridge loan might address your needs. Let’s say that you intend to downsize or purchase a house for a lower value.

In this scenario, you might use a bridging loan to sell your current property. This is a fast, straightforward decision used by many people.

Let’s say that you have found your dream home, but you haven’t managed to sell your previous house. In this case, a bridging loan could give you quick access to financing to ensure that you don’t miss out the opportunity of purchasing the perfect home for your family.

Also, if you want to pursue a building or converting project with your home, a bridge loan could supply the financing you need to start the work.

Note that many regulated lenders may limit the loan term to 12 months. Concurrently, others might facilitate roll up interest only. In terms of exit routes, they are usually restricted to refinancing or sale.

The Bottom Line

All things considered, just as it is the case with any form of financing on the marketplace, regulated bridging loans come with several pros and cons. You should be aware of them before taking any decision.

So, after considering this loan’s characteristics, you have to determine whether this form of financing is right for you or not.

Typically, understanding the type of financing you’re opting for is essential to prevent a deal that doesn’t suit your individual scenario.

We hope that this article has served its informative purpose, and we are looking forward to providing more articles on topics that interest you!

For more information please contact 020 3393 9277 or email: [email protected]


Regulated Bridging Loans