What is a Regulated Bridging Loan?
A regulated bridging finance is a form of short-term, property backed loan which is secured against the residential home of the borrower.
When you need to raise money quickly to secure your perfect home, regulated bridging finance could well be the right product for you.
Regulated bridging loans are therefore those which fall under the protection of the Financial Conduct Authority i.e. residential ones.
These aim to offer consumers a heightened level of protection against unscrupulous behavior on behalf of either the lenders or finance brokers.
Regulated Loans can be either:
First Charge Regulated Bridging Loan
In the regulated bridging loan market only consumer loans secured by a first charge on the borrowers (or partners’s) home are regulated. This arrangement is sometimes known as a regulated mortgage contract.
Second Charge Regulated Bridging Loan
Certain loans which are secured by a second charge on a borrower (or partners’s) home are also regulated. These are known as consumer credit loans.
In both cases at least 40% of the property must be currently lived in or going to be lived in by the property owner.
Regulated loans are generally restricted to a maximum of 70% loan to value(LTV), although higher amounts are available in certain cases.
Common Aspects of Regulated Bridging Finance
- 12 to 18 months maximum terms
- Rolled up Interest Options Only (rather than monthly)
- Exit Route Limitations – Sale or Refinance are the only permissible routes, with some lenders allowing only sale.
Which type of Bridging Loans are Unregulated?
Currently, all commercial bridging finance is unregulated, meaning the FCA extends no protection or supervision to this area of the industry. If you’re securing a loan for an investment property, a commercial building, or for a buy-to-let it will not be regulated.
Second Charge Commercial Bridging
Most second charge loans are also unregulated with certain exceptions.
Loans for Limited Companies
Any loan taken out by a limited company as opposed to an individual will be unregulated.
What the Risk of Unregulated Finance?
Generally speaking the FCA regulates industries where consumers are deemed to be more vulnerable which is mainly loans against their residential houses they live in. This is not the case with commercial finance. Currently, over half of the bridging finance industry is unregulated, so it’s the normal situation rather than a rarity.
Regulated bridging lenders are of course a safer bet since they’re responsible to the standards laid out by the FCA, which include displaying accurate information around fees and repayment terms. The biggest risk with unregulated lenders is that the information they provide may not be 100% clear, nor may they always demonstrate 100% ethical behaviour such as ensuring their customers are fully aware of the risks they are taking.
While unregulated finance remains a necessity for large swathes of the market, due diligence is always essential, especially in gaining total clarity over charges, and terms and conditions.
Can I Get Regulated Development Finance?
Where the borrower wishes to develop a property that is going to be their only dwelling, it is possible to use regulated bridging finance.
At least 40% of the property must be used for dwelling in order to qualify.
This type of finance is commonly used for new build projects on plots of land or where planning permission has been granted for the garden of an existing property.
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