A Guide To Regulated Bridging Loans

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Home » Bridging Loans » Types of Bridging Loan » Regulated Bridging Loans

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What is regulated bridging finance?

Regulated bridging finance is a form of short-term, property-backed loan which is secured against the borrowers home. They are usually 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.

Find out more about how this type of finance works below.

Criteria

How to qualify for regulated bridging finance.

1 Up to 70% Loan to Value (or 100% with additional security).
2 Rates from 0.48% per month.
3 Loans from £25,000 with no maximum loan size.
4 Borrow from 1 month up to 12 months.
5 Any security considered.
6 Interest can be rolled into the loan.
7 Loans with no early repayment charges available.
8 We will consider any realistic exit route.
9 First or second charge loans considered.

How much can I borrow?

This type of bridging finance tends to be restricted to 70% loan to value (LTV), although up to 100% funding is possible with additional security.

Funding can be arranged from £25,000 on a first or second charge basis, with no strict maximum loan. We have funders in place who can fund very large loans subject to suitable security, on a case-by-case basis.

Where the loan is larger, lenders tend to charge lower fees and may offer a more personal service.

The maximum loan is generally decided by your ability to repay the loan safely. As the interest is usually added to the advance and there are no monthly payments to make, your income is not a limiting factor, as long as you have a suitable exit strategy in place.

How much does regulated bridging finance cost?

There are many bridging finance lenders out there, all of whom charge different interest rates and fees. Were independent intermediaries, are not limited to any lenders and our starting interest rate is 0.48% per month.

On top of the monthly interest rate, most lenders will charge an arrangement fee of between 1-3%, although this is usually 2%. In some cases, an exit fee will also be charged, although this is becoming increasingly rare, especially on regulated loans.

For larger loans, you may be eligible for a discounted arrangement fee. Small discounts may be possible on loans above £200,000, with loans about £500,000 seeing significant reductions.

We always scour the whole market on your behalf to secure you the best possible interest rates. Our business is to provide cost savings to you at every opportunity.

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.

Where completion is required in a very tight deadline, a regulated bridging loan would be used to ensure the property isn’t remarketed due to the delays. This would stop you from losing out on the property due to delays, as may be the case while you wait for a residential mortgage.

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.

An example scenario of a regulated bridging loan in practice

An applicant was £150,000 short of the funds required to complete a property purchase quickly. The applicant needs £150,000 net – meaning any fees and interest must be added on to this figure, not deducted from it.

The lender agreed the following terms:

  • A term of 12 months
  • Arrangement fee of 2% – £3,312.94
  • Interest of 0.55% per month – £10,932.70
  • Admin fee of £350 and a telegraphic transfer fee of £30
  • Legal fees of £1,020 (including VAT)

Based on the above terms, this meant a gross loan of £165,647 and a net loan of £150,001.36.

The gross loan is the total amount borrowed and the net, the amount released to the borrower. If the loan is repaid early, the unused interest will be deducted from the gross loan, meaning the borrower pays less.

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.

Are second charge bridging loans regulated?

Yes, second charge loans are also regulated, expect 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.

What to expect when applying

When applying for regulated finance, you can expect a detailed discussion around your personal circumstances and what it is that you’re trying to achieve.

Without doing this, it’s impossible to know whether this type of loan is the right option for you.

As these loans are more expensive than many other types of secured borrowing such as a mortgage, it’s important that you get this right. We always consider the alternative products available, such as a mortgage or second charge loan to help you make savings wherever possible.

Is the process more difficult than unregulated loans?

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.

Some applicants are tempted to say that they will not be living in the subject property to benefit from simpler criteria.

This is a bad idea as it will reduce your rights and will put you at risk of repossession should this come to light after completion of your loan.

What documents will I need to provide when applying?

Although each application is different, 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 any second charge applications.

Can regulated loans be taken for longer than 12 months?

No, regulated loans are restricted to 12 months, this is a regulatory point rather than the choice of lenders. This means every lender has the same limitations.

If you are unable to repay your loan within the 12 month term, the lender can’t offer an extension. Should this happen, you should consider rebridging loans, which could be used to repay the loan and take another 12 month term.

This should never be the primary repayment strategy as it can be very costly and can result in repossession should a new lender not be found.

What are the options available to me when looking for the best 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 our service.

about-the-author-gary-hemming

About The Author

This content was produced by our Commercial Lending Director, Gary Hemming. Gary has over 15 years’ experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans. He is widely respected in his field and regularly provides expert commentary for specialist trade publications, specialist business press as well as local and national press.

Gary Hemming CeMAP CeFA CeRGI CSP  -  
Commercial Lending Director

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