unregulated vs regulated bridging loans

The difference between regulated and unregulated bridging loans

09 / 10 / 22

In the UK market, bridging loans fall under two categories – regulated and unregulated. Understanding the differences between them is vital when applying for a bridging loan as some lenders cannot offer a regulated loan.

We’re going to answer the most common questions when it comes to regulated vs unregulated bridging loans.

What is a bridging loan?

Bridging loans, otherwise referred to as gap loans and interim loans, are short-term loans most commonly used in real estate transactions, for example, purchasing property or fixing a broken property chain. 

Unlike mortgages, where the amount you borrow is based on income and deposit, bridge loans are largely asset-based loans, although some consideration will always be given to the borrower’s financial situation. 

Bridge loans are paid back within a short period of time, typically between 6 to 18 months and are usually used to relieve short-term cash flow issues. 

What are the differences between unregulated and regulated bridging loans?

There are key differences and similarities between regulated and unregulated loans.

A regulated loan means you benefit from FCA protection unless the purchase is for business purposes. The FCA (Financial Conduct Authority) is the conduct regulator for thousands of financial service providers in the UK and aims to protect consumers, ensure fair competition and protect the integrity of the UK financial system.

In contrast to this, unregulated loans are not regulated by the FCA meaning there is no further protection beyond common law and consumer protection laws.

You cannot choose whether the loan you are applying for is regulated or unregulated. When applying for a bridging loan, it will be automatically regulated by the FCA if the bridging lender is securing a first charge over your own home. If you’re applying for a commercial bridging loan, it will be automatically unregulated. There are some exceptions to both scenarios but in the main this is how it works.

What constitutes a regulated bridging loan?

A bridging loan becomes regulated if the funds are to be used for personal reasons rather than for business purposes. In almost all cases this would involve the lender taking a first charge on the borrower’s own home (or a property that they intend to move into) with the funds being used for a chain break or maybe even to renovate the property.

Unregulated lenders can still take a charge over someone’s main residence provided it is a second charge, rather than a first. 

There are specific scenarios whereby an unregulated lender can take a first charge on someone’s own home and we would be happy to speak with you about this if you think it’s an option you would like to consider.

What constitutes an unregulated bridging loans?

A bridging loan is unregulated if the borrowing entity is a company and the funds are to be used for business purposes, provided the lender is not being asked to secure a first charge on the borrower’s main residence. 

Individuals, like private landlords, can also utilise the services of unregulated lenders if they are leveraging funds against properties in their portfolio.

Other uses can also include:

  • Purchasing land with the intention of property development
  • Raising funds to inject into a business
  • Refinancing existing debt

How our bridging loans have helped property investors

As privately funded bridging loan experts, we’ve had the pleasure of working with a huge variety of businesses and business individuals with their investments and cash flow relief requirements. 

In one of our latest case studies, we supported an experienced property developer with kickstarting her rental portfolio, and when an opportunity arose to purchase a stunning new-build when the original buyer’s chain collapsed, we were able to help. 

In this case, our client was able to strike a deal with the owner and was offered a discounted purchase price on the basis that she is able to complete the sale within the month. This called for us to draw on all our strengths; our access to private funds, excellent and fast communication skills and ability to complete within tight deadlines.

To get started with this project, we set up an email that included all the solicitors to ensure communication was quick and concise, and we allowed a no search indemnity policy to be put in place, and within a week of the enquiry, we were on site to give our own appraisal.

Thanks to our speed and expertise we were able to meet the deadline meaning our client completed at the discounted price that was agreed. She was thrilled with the outcome and with the money saved on the purchase price, she plans to kit out the house with a designer garden and a luxe, top of the range hot tub. 

Read more about this case study here, or view our other success stories here.

How to apply for a bridging loan?

Applying for a bridging loan is easy. As soon as we receive your application, our swift decision makers review your application and will be in contact to discuss your application. Within a few hours, we aim to send you a DIP along with other important documents to jump start your application process.

Once you review and complete any documentation, our underwriting team will review your application and documents and the offer has been accepted, we start on the legal documentation and processes.

Should you need help with your application or have any questions about the product, you can get in touch with our helpful team here

Velocity Bridging fast and secure bridging loans

We provide bridging loans of up to 1.5 million pounds (£1,500,000) to businesses and individuals looking for a bridging loan for business purposes, such as property development and to ease cash flow. 

We’re privately funded which allows us to quickly approve your loan and process your funds. So, if you’re in England, Scotland or Wales and you’re looking for a fast, secure bridge loan for business purposes, get in touch with us today.

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