Have you ever wondered what the differences are between regulated bridging loans and those that are unregulated?
One of the most flexible loans originates from commercial bridge loans, a popular way to obtain the money as a homeowner, property investor, or property developer.
Although used primarily for businesses, there are also homeowner bridging loans – they are often referred to as a regulated bridging loan – and represent, at least back in 2019, over 30% of the UK bridging market.
Whether they are regulated, or unregulated, bridging loans are very unique. Lenders will be required to provide some form of security, typically a first or second charge attached to the property which is owned by the person borrowing the money. A clear exit strategy needs to be presented, as well as some awareness of the risk involved such as the repossession of the security if the loan is not paid back.
When looking at short-term loans, this might be something to consider, yet the interest rates are quite high on these loans. If you do have your home repossessed, it will likely be because repayments were not made on the mortgage.
In the UK, regulated mortgage lenders must be authorized by the FCA.
Here are some of the differences that you should be aware of between different types of loans:
What are regulated loans?
These are simply loans that are secured by property that the borrower would like to own or may currently occupy.
In contrast to unregulated bridging loans, these are not meant for business purposes.
What are these loans used for?
Chain breaks tend to be the primary reason that regulated urging loans are required. They may obtain one so that they can purchase a new property, one that they would like to acquire before selling the one that they currently own.
Although most of these do involve property chain breaks, there are just a few which involve personal circumstances where someone needs to have access to immediate cash, or perhaps they would like to refurbish their property in the near future.
What Are Unregulated Bridging Loans Used For?
FCA really does not regulate loans if there is a secured property involved, or if the intention for the revolves around a business related purpose.
In most cases, businesses are going to be well aware of contracts related to the business, and will only sign and commit to spending money on that business, which is why they may not need this type of protection.
Although this is assumed, every business must understand what they are signing. Again, the assumption is that professionals are conducting business in the trade and will know exactly what they are doing.
What would you use an unregulated bridging loan for?
These are often used for commercial purposes such as:
- Securing a particular piece of property where improvements need to be made
- Refurbishing your property that is intended for resale
- Obtaining properties added local action
- Securing commercial, residential, or even semi-commercial properties as fast as possible
- Funding for working on a property
- Purchasing land, which will require planning permission, prior to developing the property.