Regulated vs Unregulated Bridging Loans, Is There Such a Thing?

Laura Broad[1]

Laura Broad

Money Savings Advice Regulated or unregulated bridging loans

Regulation in the financial industry isn’t something that you can choose between - a product is either regulated, or it isn’t. Bridging loans are no exception to this rule.

Does the FCA Regulate Bridging Loans?

Bridging loans for personal property are always regulated by the Financial Conduct Authority. Bridging loans for commercial properties, including buy-to-lets, are unregulated and don't have the protection of the FCA if you're mis-sold a loan.

Financial regulation is good for the industry as a whole, but it also filters down to you too. Regulation means consumers like you are better protected from incorrect advice, dodgy dealings and mis-selling from financial advisors, lenders or brokers.

If a product or industry is unregulated, these same protections don’t apply - you’re a bit more on your own.

This is where the plot thickens with bridging loans - some bridging loans are regulated, and others aren’t.

This guide sheds light on the regulated vs unregulated bridging loans debate.

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What Is a Bridging Loan?

As the name suggests, a bridging loan aims to ‘bridge the gap’ until you can access more long-term funding. It’s a short-term finance option where the amount you borrow is secured against a property you own. The places where a bridging loan might come in handy include:

  • Buying a property quickly (such as a buy-to-let property at an auction)
  • Buying a property before the sale of your existing one is completed
  • Paying for renovation or conversion work on a property
  • Stopping a property being repossessed if a mortgage is in arrears
  • Buying land with or without planning permission for development

Some lenders might also consider approving you for a bridging loan for other investments so long as the loan can be secured against an existing property or land. This means that if you can’t meet your repayments, then just like a mortgage, you could risk losing your home.

Who Can Use a Bridging Loan?

As bridging loans are typically all about property, they’re most common among homeowners, landlords and property developers. Bridging loans can be residential or commercial. It’s these differences that determine whether a bridging loan is regulated by the FCA or not.

How Does FCA Regulation Work?

When it comes to fair play in the financial industry, the Financial Conduct Authority (FCA) calls the shots. The FCA's job is to regulate financial firms and make sure they're acting with integrity and protecting their customers from financial harm.

If a bridging loan is regulated, it's covered under the Mortgage Code of Business (MCOB) rules. This means that as a homeowner, you get a higher level of protection from the FCA against mis-selling or dodgy dealings from lenders or brokers.

Products and services regulated by the FCA also enjoy additional protection from the Financial Ombudsman Service - if anything does go wrong, the Ombudsman can help you to settle any disputes fairly and impartially to get you any compensation that you may be due.

Which Bridging Loans Are Regulated and Which Aren’t?

Regulation is determined by the use of the property the loan is associated with. Personal bridging loans for residential purchases are regulated while commercial ones aren't.

If it's a property that you live in or are going to live in, it's classed as residential and therefore is regulated. If the property is a commercial property used for business or you are buying it as a buy-to-let investment, then it is classed as commercial and therefore is unregulated.

What Is a Regulated Bridging Loan?

Regulated bridging loans are residential - you or any member of your immediate family live in the property or will do in the near future.

Residential bridging loans can either be first charge or second charge. This depends on whether or not there is already any other borrowing secured against the property you want to secure the bridging loan against.

Common types of regulated bridging loan include:

  • All first charge bridging loans. This means you don’t have any other borrowing (e.g. a mortgage) left to pay off - you or your partner own the property outright. These bridging loans are sometimes also known as regulated mortgage contracts.
  • Some second charge bridging loans. This means you already have a loan such as a mortgage secured against the home. Second charge bridging loans are regulated when you or your family occupy at least 40% of the property being used as security.

What Is an Unregulated Bridging Loan?

  • Commercial investments. Currently, all commercial bridging loans used for business rather than personal means are unregulated. This includes first charge loans on commercial properties, property developments, buy-to-lets and land.
  • Loans in a company’s name rather than an individual’s. Any loan that is taken out in a company or business name rather than by an individual can’t be classed as residential. This means it will be deemed as commercial and therefore unregulated.
  • Some second charge bridging loans. If the loan is to be used for business purposes and is £25,000 or over, it is classed as commercial even if it is secured against the borrower’s home. This makes it unregulated.

What Are the Risks of Unregulated Bridging Loans?

As it’s the commercial bridging loan industry as a whole that’s unregulated and not individual products, all bridging loans for non-residential purposes are going to be unregulated.

This means you don’t enjoy the same protections that residential borrowers do. A lender of unregulated finance is not bound to the same high standards that the FCA sets for regulated products. As a result, it’s up to you to do your own due diligence as to whether an unregulated lender is acting with integrity or if you are being mis-sold to.

Think about:

  • Clarity - is the information you are being given 100% clear?
  • Transparency - are you being made fully aware of any risks and hidden charges?
  • Ethics - is there anything that you want to know that your lender isn’t telling you?

Unregulated bridging loans aren’t uncommon, so you won’t be in the minority if you choose to go down this route. However, as with any borrowing, make sure you do your research and explore bridging loan alternatives and their pros and cons first.

Always make sure you know how you will pay back any money that you borrow - especially short-term, secured finance as your home could be at risk if you can’t meet your repayments.

How Can Money Savings Advice Help You With Bridging Loans?

Here at Money Savings Advice, we have partnered with some of the UK’s leading Bridging Loans brokers. They have already helped thousands of people get the best Bridging Loan deal and they can do the same for you.

Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.

Money Savings Advice Author Laura Broad

Laura Broad

Laura is a professional content writer and learning designer, passionate about empowering people through straightforward, jargon-free content. When she's not reading or writing about all things personal finance, you can find her in the gym, barbell in hand.

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