Unregulated Bridging Loans

Property development is booming across the UK. Contrary to earlier predictions of a slowdown, the industry is experiencing some of its strongest performances in decades. Landlords, developers, and investors are now facing heightened competition for resources like land and development opportunities.

The surge in the property market has also led to a sharp rise in mortgage applications. However, banks are struggling to meet the overwhelming commercial and residential demand. This shortfall has prompted a significant increase in alternative financing options, particularly bridging loans.

Understanding Bridging Loans: Regulated vs. Unregulated

Bridging loans are short-term financing solutions that help bridge the gap between the purchase of a new property and the sale of an existing one or fund property development projects. These loans can be either regulated or unregulated, depending on the property’s intended use and the borrower’s circumstances.

• Regulated Bridging Loans: These loans are governed by the Financial Conduct Authority (FCA). They are secured against properties that are, or will be, occupied by the borrower or their immediate family. This includes both first and second-charge loans, even if a personal mortgage already exists on the property. Regulated bridging loans adhere to the same rules as traditional residential mortgages, offering consumer protections and standardized terms.
• Unregulated Bridging Loans: These loans fall outside the FCA’s regulatory scope. An unregulated bridging loan is typically secured against a property not intended for personal occupancy by the borrower or their immediate family but used for business or investment purposes. Loans taken out in the name of a business or company also fall into this category. Unregulated loans offer more flexibility but come with fewer consumer protections.

Key Differences

The main distinction between regulated and unregulated bridging loans lies in the property’s intended use and the borrower’s identity:

• Intended Occupancy: If the property is or will be the residence of the borrower or their immediate family, the loan is regulated. If the property is for business or investment purposes, the loan is unregulated.
• Borrower’s Status: Loans taken out by individuals are subject to regulation if they meet the occupancy criteria. Loans taken out by businesses or companies are generally unregulated, regardless of occupancy.

This differentiation also applies to commercial mortgages. A commercial mortgage on a property occupied or to be occupied by the borrower or their immediate family falls under FCA regulation. Conversely, if the property is not for personal occupancy or the mortgage is in a company’s name, it is unregulated.

This type of bridging loan isn’t dissimilar to others and so the criteria isn’t hugely different either. First and foremost, each commercial lender will have its own criteria and this can differ depending on your circumstances.

Most will want you to be able to provide a deposit of about 25% but this can vary, and the more you have the lower the interest. Lenders will also look for an exit strategy to show how you’ll repay your loan. Finally most lenders will want to see some evidence that you’re able to deliver and have a good track record of success and paying on time.

Aside from these basic criteria the best idea is to speak to one of our bridging finance brokers and they can advise you on what you might qualify for, and what business finance may suit you. Intermediaries can often find you the most suitable products at the best rates.

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What are some viable exit routes for bridging finance?

We’ve got a team of brokers with years of experience in the bridging finance and commercial mortgage industry. They know what’s needed for a successful application process and one of the things most companies providing mortgages and bridging finance will require is a viable exit strategy.

An exit strategy in simple terms is how you plan to repay your loan on time. For property developers or investors this usually comes in the form of a business plan or a timeline of when you expect to be able to repay your bridging loan. For example, if investors buy a property at auction and don’t have enough in savings accounts or in cash to pay the money within 28 days, or if the property is uninhabitable and doesn’t qualify for mortgages, then investors will take out unregulated bridging. They will then be asked to show a plan of how they will renovate the property to qualify for mortgages in time to pay the bridging loan.

What assets can I get a bridge on?

Most lenders in the UK will want some kind of property as an asset to secure your loan against, however, this varies depending on circumstances and your development. We’d advise you to contact us and speak to one of our team.

Both commercial and residential properties are usually acceptable but if you have other assets with a good re-sale value these may be considered.

Can I roll up interest payments?

Most of these type of loans don’t actually expect you to service the interest monthly and will usually offer a range of options for the user.

One option is to have the interest taken out of the initial sum before it’s transferred over to you removing the need for you to service the interest monthly, and secondly you can opt to pay the interest in a lump sum at the end of the term which allows many of our clients piece of mind that they can get on with their development without having to worry about making monthly interest payments.

Again, this will vary depending on the lender and it’s worth getting in touch with a member of the team to discuss this as we have a large and diverse panel of companies that provide this type of finance and the chances are we’ll be able to find exactly the right fit for you whilst helping you with your project from start to finish.