Regulated Vs unregulated loans
Bridging loans become regulated when they are secured against your home.
Unregulated loans are those secured against any other property or land, or those to a limited company or other type of corporate borrower.
There are three main exceptions to these rules:
Where you will occupy part of the property, the loan is unregulated the part that you occupy is below 40% of the property.
If you don’t occupy the property, but ever have or you may in the future, the loan is still regulated, even though you don’t currently reside there.
Finally, second charge loans for business purposes are unregulated, even if they’re secured against your own home.
How much can I borrow?
We fund unregulated bridging loans up to 80% loan to value (LTV), and can even lend up to 100% LTV with additional security. We can fund loans between £25,000, with no maximum size.
How much will it cost?
Lenders are competing heavily on rate and customers are greatly benefitting from this increased competition, through cheaper loans.
We can offer loans from 0.48% per month up to 50% LTV and can even lend at 0.65% per month at 75% LTV!
The rate charged tends to increase as the LTV increases and loans at 80% LTV tend to have much higher rates, usually over 1% per month.
In addition to the monthly interest cost, lenders charge a lender arrangement fee, this is a fee for setting up the loan. This fee is usually 2% of the loan amount, although this is sometimes discounted as low as 1%, especially on larger loans.
How long do they take to complete?
Unregulated bridging finance can be completed very quickly, sometimes even on the day of application.
Usually, a completion of 5-14 days is realistic, depending on the lender used. If you’re looking to secure the lowest rates, it is a good idea to allow slightly longer for completion as the lender will generally insist on more stringent criteria checks.
What does unregulated mean?
Unregulated refers to the fact that the loan being taken does not fall under the protection of the Financial Conduct Authority (FCA).
This means that you when taking out an unregulated loan, you will have less protection in the event of something going wrong.
The FCA rules focus on treating customers fairly in both the advice given and how the account is handled once the loan is in force.
Should I be warier when dealing with an unregulated lender?
Although you should always undertake due diligence on the lender that you’re looking to borrow from, it’s even more important when taking out an unregulated loan.
There are a lot of new bridging lenders entering the market all the time and it’s important that you work with the right ones.
Although it’s rare for a lender to be fraudulent, there are often terms included in the contracts that could come back to haunt you.
There are a few key factors to consider when looking to work with a new lender:
- What is the reputation of this lender? Look online to find reviews from existing customers.
- What happens if there is a problem with the loan? Do they charge higher default interest rates?
- How long have they been operating? Companies with a strong reputation over a number of years should be trusted more than newer companies with less history.
- Are they a member of other trade organisations designed to improve standards, such as ASTL (Association of Short-Term Lenders)?
Although we offer unregulated bridging finance, we are an FCA regulated broker and we strive to treat all our customers with the same level of care whether it is regulated or unregulated.
What can unregulated bridging finance be used for?
We can provide funding for almost any purpose, the most common unregulated bridging loan uses are:
Adding value to a property through property refurbishment
Purchasing a property quickly
Funding an auction purchase
Repaying development finance
Funding a property conversion
Adding value to a property before selling it
What are the benefits of an unregulated loan?
There are a lot more unregulated lenders than regulated, meaning you have a wider choice when taking out this kind of finance.
In addition, there is less restriction around the term offered, unlike regulated loans, terms over 12 months are commonly available.
Finally, there is more scope for lenders to base LTV decisions on the open market value of a property rather than the purchase price.
How can I ensure I’m protected when working with an unregulated lender?
Undertaking research on the lender as mentioned above is a great start.
If you’re still uncomfortable working with an unregulated lender, you could look to work with a regulated lender or bank.
Although the loan would still be unregulated, these lenders are likely to still hold themselves to a higher standard and will be able to provide clear complaints procedures.
Can I get an unregulated bridging loan?
As there are fewer rules for unregulated loans and more lenders in the market, there is increased competition between lenders. This has led to more flexible criteria, which is a big benefit to borrowers.
As such, there is usually a lender for most situations. Unregulated finance is available up to 80% LTV and with rates starting at 0.48%.
The difference in cost between different lenders and brokers can be quite high, so it’s important that you look for the best deal.
Upfront fees and broker fees
One thing to be wary of is paying out upfront fees. There are a number of brokers and lenders who will ask for funds before they even look at your application.
Our advice is that you should never pay upfront fees to engage with a broker or lender. As such, we never charge upfront fees to our clients.
In addition, we don’t charge broker fees for bridging loans over £100,000. Broker fees of between 1-2% of the loan amount are common in the market.
What information will I be expected to provide when applying?
Each application is different, but in general, you will be asked to supply the following:
An application form
Proof of ID & address
Details of any planned works to the property
Proof of your chosen exit strategy