Understanding the difference between regulated and non-regulated bridging loans is key.

The key differences

Purpose of funds

Generally, bridging finance is regulated if the borrower or their immediate family live in the property in question, or intend to in the near future. A loan may also be regulated if it is against a mix-used property which the borrower or family occupy more than 40% of.

Otherwise, if the property is to be used for business or investment purposes, the bridging loan doesn’t require regulation. This includes commercial properties, semi-commercial properties (for example, a flat above a shop), rental properties, buy-to-sells or land.

Furthermore, a loan is not regulated if it is applied for by a company, rather than an individual.

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Regulation and risk

The obvious difference between these two forms of finance is regulation. A ‘regulated loan’ is overseen by the FCA and falls under similar underwriting rules as a residential mortgage. Regulated bridging loans must meet certain set standards and ensure consumers are protected under the Mortgage Code of Business (MCOB) rules. A regulated lender will also want to know about a borrower’s personal financial situation in order to assess method of repayment and affordability.

Non-regulated bridging finance doesn’t have any strict rules. It is more flexible, however, it does not offer as many protections and can be seen as riskier as a result. Most non-regulated bridging loans will be commercial and bespoke to an individual or company’s circumstances, utilising assets or company income as an exit. As a result, lenders are unlikely to look at an individual’s personal income during the application process.

Speed

As non-regulated bridging loans do not have to fit strict criteria, there is less paperwork involved, more lenders offer them and they tend to be processed quicker than their regulated counterparts. We have secured unregulated bridging finance for clients in mere days before, something which has proved popular for clients who have had previous deals fall through last minute.