Regulated bridging loans explained
What is regulated bridging finance?
Regulated bridging finance is a form of short-term, property-backed loan which is secured against the borrower’s home. They are often used to fund the gap between the sale of an existing property and the purchase of a new one.
When you need to raise money quickly to secure your perfect home, these loans could well be the right option for you.
What does ‘regulated’ mean & how does this affect me?
The term regulated when discussing bridging loans means that the loan is regulated by the Financial Conduct Authority (FCA).
The FCA are a regulator for financial services and aims to protect consumers, enhance the integrity of the industry and promote competition in the interests of consumers.
All of this means that when taking a regulated bridging loan, you are subject to a higher level of protection from unscrupulous lending practices. These rules are only in place to protect personal borrowers and don’t apply to investors or business borrowers.
What can a they be used for?
The most common use is purchasing a property before an existing home is sold. That said, there are many other common uses, the main ones being the following:
Purchasing at auction – when buying at auction, there is usually a 28 day deadline for completion. As traditional mortgages can’t usually be completed this quickly, many turn to bridging as an alternative.
Property refurbishment – where refurbishment requires additional borrowing, or where the works are particularly heavy, some mortgage lenders may be unwilling to support you. Bridging finance can be used as an alternative in this situation.
Extending a lease – when a leasehold property has under 60 years remaining on the lease, it may become difficult to finance and the property’s value may reduce. Bridging loans can be used to fund a lease extension before the property sells, ensuring you maximise your sale price.
Funding care fees – when moving into care, many providers require a number of months payments upfront. This can be out of reach for many and can mean moving to a less desirable care home. Bridging loans can be used to release equity for the fees, giving you a greater choice of homes.
Preventing repossession – funds can be raised quickly to prevent repossession. Credit problems and income are generally not an issue here if the property is to be sold.
Buying a partner out of the property – where a property is to be sold, or where a divorce settlement order is in place, funds can be raised to fund this.
Key product features
|Max LTV||Up to 75%|
|Interest rate||From 0.43% per month|
|Charge types||1st or 2nd charge|
|Interest type||Added to the loan, deducted or serviced|
|Completion timescale||5 days – 3 weeks|
- Residential, commercial property or land acceptable
- Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals and pension funds
- Minimum applicant age 18 years – no maximum age
- Available in England, Scotland, Wales and Northern Ireland
- Adverse credit accepted (on a case by case basis)
- Loans from £25,000 with no maximum loan size
Regulated bridging finance criteria
Regulated bridging loans are available to borrowers who are borrowing in their own name. We can look at other structures, such as Ltd companies, trusts and pension funds where appropriate, although this is rare for regulated loans.
Adverse credit doesn’t prevent borrowing for these loans. We’re able to fund borrowers with almost any credit problems, including current, immediate threat of bankruptcy or repossession. Mortgage arrears, CCJs and defaults will not usually prevent lending.
Regulated bridging finance available with no minimum term and is restricted to a maximum term of 12 months.
How much can I borrow?
The amount you can borrow depends on several factors, with the main issue being your ability to exit the loan cleanly.
Our loans start at £25,000 and we lend with no defined maximum loan.
Loan to value
The maximum loan to value currently available is 75% loan to value. This is for stronger applications, secured against a habitable property.
An exit strategy is your plan on how your bridging loan will be repaid. Your chosen exit strategy is key to the success of your application– we accept almost any exit strategy, as long as it is provable and realistic.
The most common exit strategies are the sale of either the security, or another property, or refinancing the loan onto a mortgage.
Affordability checks aren’t usually required, except where the exit strategy is refinancing to a term mortgage, or the interest is serviced each month.
Regulated bridging loan rates & costs
Interest rates start at 0.43% per month. Rates of 0.48-0.65% per month are common for relatively strong applications.
Interest rates are usually tiered based on the LTV required, with lower rates being offered at lower LTVs. The cheapest rates are usually offered on applications at 50% LTV and below.
Interest rate types
Products are arranged on a fixed or variable rate basis. We’re able to offer either, depending on your preference.
As these loans are arranged over a short-term, the risk of rate changes is reduced compared to longer-term loans, but should still be considered.
When taking out a new loan, your application will usually be subject to fees, often including some of the following:
Lender arrangement fee – This fee is usually between 1-2% of the loan amount and is charged when the funds are released by the lender. Larger loans are likely to be at the lower end, with smaller loans at 2%. This fee is usually added to the loan.
Lender exit fee – Some lenders charge an exit fee on their loans. This fee is usually between 1 month’s interest and 1.5%. We can often arrange loans with no exit fee.
Broker fee – Many brokers charge a fee for their service, often between £1,000 and 1.5% of the loan amount. We don’t usually charge a fee for our service.
Valuation fee – The valuation fee (also known as a survey fee) is a fee paid to a chartered surveyor of the lender’s choice. The cost can vary, or may even be avoided where an electronic valuation can be undertaken.
Legal fees – Borrowers pay both their own and the lenders legal costs. These fees vary depending on many factors.
Do I have to pay the interest each month?
Interest is usually rolled into the loan and paid at the same time that the loan is repaid.
It is possible to pay the interest monthly with some lenders, although it is fairly uncommon. Where interest is to be paid each month, proof that this is affordable will be required.
How to get a regulated bridge loan
What documents will I need to provide when applying?
You will generally be expected to provide the following:
- Proof of ID & residency.
- Statements for your bank and savings accounts.
- Proof of income (payslips and accounts for business owners).
- Proof of your chosen exit strategy.
- Details of any mortgage for accounts for second charge applications.
Comparing regulated bridging loans to unregulated facilities
There may be additional information required and some checks may be more stringent than unregulated applications.
It’s important to remember that these checks are designed to protect you and they work well.
How long will my application take to complete?
These loans can complete very quickly. We can arrange regulated bridging finance on the same day under extreme circumstances. Generally, it is realistic to expect your loan to complete in 5-14 days.
How can I secure a better deal?
There are 3 options available to you when looking to secure the best possible terms.
Firstly, you could make a list of all lenders and contact each one individually and request terms. This allows you to deal directly with the lender and avoid broker fees.
That said, it is a very time-consuming approach and if you miss a lender, may mean you’re not securing the best deal. In addition, many lenders will only accept applications for regulated loans through brokers to ensure that appropriate advice has been given.
Secondly, we allow you to compare products and apply online instantly. We’re the only company offering an instant bridging loan comparison based on your circumstances in the UK. Once you’ve found a suitable product, you can apply online.
We always check your application to ensure that your chosen product is suitable before submission, therefore offering you further protection.
Finally, you could discuss your circumstances with a broker. They will provide terms on the most suitable options and will be able to advise you throughout the process. We offer this service in addition to our online comparison.
Be wary of high broker fees, especially those charged upfront. We don’t charge broker fees for bridging loans as we’re paid by the lender, meaning you won’t pay any extra when using our service.
Are second charge bridging loans regulated?
Yes, second charge loans are also regulated, except for very specific circumstances. Loans over £25,000 for business purposes may be unregulated.
Although this is the case, many lenders will still treat an application as regulated if it is secured against your own home. This gives you greater protection at a cost of slightly reduced flexibility.
Can I waive my rights and take an unregulated loan?
No, where the loan meets the rules for regulation, a regulated product must be taken.