18th July 2019

Is Bridging Finance Regulated?

Read about regulated bridging finance

A bridge loan is a form of short term, property-backed funding. Whether your aim is to purchase a new property quickly and sell it at a profit – or to re-finance and hold that property as a long-term investment – you may benefit from bridging finance.

Many people will also turn to fast bridging loans when they want to buy a new home before selling the property they already own. As long as you – or a member of your family – plans to live at the property you’re planning to purchase, your bridging loan will likely be regulated.

Breaking Down Regulated Bridging Finance

There are two types of bridging loans – regulated, and unregulated.

The short definition of a regulated bridging loan is one that’s protected by the Financial Conduct Authority (FCA). In fact, regulated bridging lenders must follow a strict set of FCA rules designed to promote the fair treatment of customers.

In order to qualify as regulated, your bridge loan will need to be secured by a property that you or a member of your immediate family occupies (or plans to occupy). And although almost all regulated bridging finance solutions use property as security, FCA regulated bridging loans are further broken down into first charge and second charge loans.

A first charge bridging loan is one secured by a property that:

  •       is owned outright,
  •       has no outstanding mortgage balances on it, and
  •       has no other loans secured against it

A second charge bridging loan is secured by a property that:

  •       still has an outstanding mortgage balance on it, and
  •       is owned by someone whose equity in it is enough to cover the amount of the bridge funding

In general, as long as a clear charge is available, any type of property can be used to secure regulated bridging finance. Just the same, there are certain situations where your property bridging loan will be considered unregulated.

What Are Unregulated Bridging Loans?

Unregulated, or unprotected loans are those secured by a property that neither you nor a member of your family lives at (first charge loan). Your mortgage bridge loan will also be considered unregulated if you do live at the property you use as security, but:

  •       the loan is for business purposes, and
  •       the amount exceeds £25,000 (second charge loan)

You should note that this could describe your situation if you’re in the market for a buy to let bridging loan – especially if you intend to become a professional buy-to-let landlord.

If that’s the case, you should also know that buy to let mortgages are no longer regulated, unless they qualify as consumer (as opposed to business) buy to let loans.

For obvious reasons, non-regulated bridging loans are considered rather riskier than regulated bridging finance. So it’s vital that you work with a reputable lender if you’re considering taking the unregulated path.

In most cases, however, unregulated bridging loans are reserved for companies looking to purchase commercial property, raise short-term capital, or for those considering a bridging loan for property development purposes.

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