Bridging loans or bridge finance, will typically fall under regulated or unregulated activity – and this can have quite an impact on the application process, eligibility and terms that you receive. In this article, Octagon Capital aims to explain the difference between regulated and unregulated bridging – and how you can find the best product for you.
As a rule of thumb:
- Any residential bridging is regulated (if it is their primary residence)
- Any commercial bridging is unregulated (including offices, garages, warehouses)
| Regulated Bridging | Unregulated Bridging |
| 70% Maximum LTV | 75% Maximum LTV |
| First and Second Charge | Mostly Second Charge |
| Subject to Status | All Credit Statuses Considered |
What is the regulation for bridging loans?
When it comes to regulated bridging loans, the FCA is the main regulator in the UK for any mortgages or deals. Essentially, they have strict regulation and guidelines in place to ensure that borrowers do not risk losing their primary residence when borrowing and there is adequate protection in place.
So typically, you can borrow against residential properties, such as buying a place for buy-to-let purposes. However, you cannot borrow a regulated bridging loan if it is secured against your own primary residence.
Part of this is the Mortgage Credit Directive (MCD) which is an EU framework for mortgage firms and is overseen by the FCA. There are a number of measures in place to offer transparency to customers, such as showing them any rates beforehand as an APRC and also giving applicants a reflective period in case they want to change their mind or request more information.
For the regulation surrounding SMCR, this is for senior managers of investment firms under the FCA – and does not apply in this case.
Borrowing against flats and places of primary residence will typically fall under regulated activity
Regulated bridging loans and mortgages are available by first charge or second charge
First charge loans
This refers to the ‘first charge’ that is taken from your bank account each month, so often refers to as your first mortgage, which could be against your main residence and property that you live at, or an investment.
Second charge loans
This refers to the ‘second charge’ from your bank account, taken out after your first charge. So you could have a mortgage against your home (this is your first charge) and then another mortgage or bridging loan against an investment product (this is your second charge). You can also get a second charge against your existing home, known commonly as a second mortgage.
Importantly, the amount you can borrow on your second charge is less than your first charge, since it is second in the queue when it comes to repayments each month.
You can use the same lender for both first and second charge, or use a different one for each.
What is unregulated bridging loans?
When bridging loans are unregulated, they are conforming to some essential guidelines, but there are a lot of flexibilities when it comes to the criteria and lending to people with adverse credit histories. Loans in this nature are commonly by means of second charge, and with faster processing and applications, they typically make up around 50% to 60% of all bridging deals (regulated rarely gets more business than unregulated in this sector).
Unregulated business is often for commercial properties including:
- Offices
- Petrol garages
- Schools/ Hotels/ Farmhouses
- Warehouses
- Factories
- Gyms
- Other business purposes
What does non-status bridging loans mean?
Non-status bridging means that it does not take credit status into account. So where regulated mortgages and most financial products require a strong credit score, this is not the case with non-status lending. Therefore, lenders are willing to take a view on adverse credit histories or limited credit histories and may look at other factors such as the potential value of your property and the opportunity.
