Unregulated Bridging Loans explained
A bridging loan is a short-term finance solution for a specific purpose. Most often, the purpose of a bridging loan is to provide the applicant with the necessary funds to purchase a property before the sale of their current or existing property. The money made from the sale will be used to repay the bridging loan.
Bridging loans are a popular choice of property development finance. In this case, the bridging loan will be used to purchase the property or site intended for development. The loan will be repaid once the completed units have been sold or let.
A quick turnaround and straightforward application process characterise bridging finance. No loan, mortgage, or financial solution is ever quite that easy though, is it? Bridging loans can be regulated or unregulated, and choosing the right lender can seriously affect the rate of interest you will pay.
Fortunately, Loan Corp can help you with all of that. We work with 200+ mainstream bridging lenders and will help you navigate between a regulated bridging loan and an unregulated bridging loan and submit your bridging loan application to the right lender for your bespoke requirements.
Different Types Of Bridging Loans
Bridging loans have pros and cons, like any other type of loan or mortgage. The trick is not to get in over your head, so to speak, and never borrow more money via bridging finance than you can realistically pay off.
One of the most attractive features of bridging finance is the flexibility of repayment. Of course, not all bridging loan lenders are entirely open to flexibility. That is where Loan Corp comes in.
The first thing you ought to do is figure out whether you need a regulated bridging loan or an unregulated bridging loan. This is not so much a choice, but rather the domestic market is regulated, and the commercial market is not.
Regulated bridging loans
Regulated bridging loans are overseen by the Financial Conduct Authority FCA, which makes them more secure. The Financial Conduct Authority has determined that an applicant may only be eligible for a regulated bridging loan if the applicant or their family occupies the property in question. Or if they plan to occupy it if the property is not yet habitable.
It is worth keeping in mind that the criteria for regulated bridging finance are determined by the FCA, not individual lenders.
On the one hand, having your bridging loan overseen by the Financial Conduct Authority offers some extra security. If you take umbrage with regulated lenders or have reason to believe you are being treated unfairly, the FCA will offer professional and impartial advice.
You might choose a regulated loan if the purpose of the loan is to:
- Renovate your current property.
- Renovate a property to move in.
- To avoid a troublesome property chain.
Unregulated bridging loans
Unregulated bridging loans are not overseen by the FCA. This means you need to be doubly certain you like the loan agreement before signing. It also means that the lenders are not bound by FCA criteria, offering greater flexibility.
The unregulated bridging loan is the more common option. There are much easier to find, and anyone can apply for one.
Unregulated bridging loans are a good choice if the money is for:
- An investment property you do not intend to live in.
- Refurbishing or flipping a property for profit.
- Buying a property before the sale of your existing property.
Unregulated bridging loans offer more flexibility and a wider choice of lenders. In turn, this means that the applicant should have more repayment options to choose from, with the possibility of more favourable interest rates.
Which is better?
Both types of bridging loans have their positives and negatives. Neither one is better per se, but rather it comes down to which one is more accessible for the applicant and which is better suited to their financial requirements.
It is not so much which is better, as whether you require:
- The financial security offered by the FCA.
- The flexibility to use the money however you need to.
Applying For An Unregulated Bridging Loan
The good news is that unregulated bridging loans are much easier to come by than regulated bridging loans. Much, much easier.
You can compare unregulated bridging finance options to find the best rate available and apply with help from Loan Corp. Use our simple bridging loan calculator for a tailored estimate of how much you might be eligible to borrow, and what interest you can expect to pay.
- Flexibility – unregulated bridging loans are not overseen by the FCA, so bridging finance lenders are free to be as flexible as they please. Considering how many unregulated bridging lenders there are in the UK, most applicants can compare rates until they find a lender with favourable terms.
- Accessibility – you do not need to be living at the property or intending to live there to take out an unregulated bridging loan. For this reason, unregulated loans are more accessible for property investors and buy-to-let applicants.
- Property types – unregulated bridging loans are open to most property types. This means you can use the money from an unregulated bridging loan to purchase or renovate a commercial or residential property.
- No early repayment charges – that’s right, you can readily find an unregulated bridging loan lender who will not charge you extra for early repayment.
- Lack of clarity – since lenders of unregulated bridging loans are not answerable to the FCA, there is always the risk that they might not be totally clear in the information they give out.
- Unethical behaviour – there are many trusted lenders of unregulated bridging loans in the UK, but there is always the risk that one or two might see if they can take advantage of borrowers.
Borrowers can avoid the pitfalls of unregulated bridging loans by contacting lenders through a trusted bridging finance broker. A Loan Corp broker will be able to talk through the terms and conditions of the unregulated loan.
Loan Corp will also pair the borrower with a trusted lender. Unregulated loans sought through a broker are a greatly reduced risk.
For both unregulated and regulated loans, it is more likely the borrower will be offered a favourable rate if they apply through a loan broker.
Unregulated Bridging Loan Eligibility
Unlike regulated loans, which demand the borrower intend to reside in the property, unregulated bridging loans are less specific. A loan offered from unregulated lenders is readily accessible to property investors and can be freely used for business or investment purposes.
There is no minimum income requirement for the applicant to request an unregulated loan. This makes unregulated bridging loans more accessible for applicants who would struggle to get a mortgage due to a lack of stable income, or less-than-ideal credit history.
Of course, the flip side to this is that your interest rate will be higher, and the loan is secured against the property or land.
Unlike a residential bridging loan which is intended to be paid by the homeowner, unregulated bridging finance is assumed to be paid as well as a mortgage.
For this reason, most lenders will offer a single, rolled-up interest charge to be paid at the end of the term. The alternative is monthly interest payments, which borrowers might struggle to pay alongside an existing mortgage.
Experienced or first-time property investors are eligible to apply for unregulated bridging finance to support the purchase or renovation of a property that they do not intend to live in.
These loans are unregulated since it is presumed that property investors will be better versed in finance than residential borrowers.
How Much Can You Borrow?
Property finance bridging loans secured through Loan Corp range from £25 000 to £1 billion from UK lenders. The exact amount offered depends on a few key criteria:
- Loan-to-value LTV: you can expect up to 70% of the property value on a regulated loan. For unregulated loans, there is sometimes the option to push that LTV a little higher, even up to 100% of the property value.
- Exit strategy: the lender will be more willing to offer more money if they perceive you to be a safe investment. If you have a clear-cut exit strategy for how you will repay the money and how soon, this will improve the chance of a higher loan offer.
- Credit history: while a not-so-good credit history is unlikely to prevent you from qualifying for an unregulated loan. However, it will affect the amount you are offered. If you have a good credit history, you can expect to be offered more money.
The interest rate refers to how much monthly interest you will be paying on the amount you have borrowed. An average interest rate will be approximately 0.5% to 1% of the amount borrowed.
The exact amount will be determined by the unregulated lender. The lender will calculate the interest depending on how much of a risk they deem your investment to be. That is, if they suspect you might run into difficulty or prove unable to repay them, you can expect an increased interest rate.
The borrower has a few options available to reduce the interest rate:
- Present a clear exit strategy.
- Raising the deposit.
- Demonstrating that you can release equity in other properties.
An unregulated lender might be open to you paying a set amount monthly, or they might prefer to roll all the interest together into one payment. This latter choice suits borrowers who are unable to fork out for interest until their exit strategy has proven itself.
The Length Of The Term
Unregulated bridging finance loans can be extended for a maximum of 36 months. Remember that bridging loans are short-term loans and are not intended as an ongoing financial solution.
Compare unregulated bridging loans
Like with any loan or mortgage, or financial solution, you ought to shop around and compare lenders before you settle on any one unregulated bridging loan. This is doubly the case to avoid the risks and potential pitfalls to the borrower of working with unregulated lenders.
You can compare unregulated bridging loans with help from Loan Corp. There are three key components to compare:
- The amount of money offered.
- The interest options and rate.
- The length of the term agreed to by the lender.
What is second charge bridging?
A second charge bridging loan exists behind an existing or primary loan.
If you maintain enough free equity in the property to set a second-charge loan against it, you may apply for a second-charge bridging loan.
You must have the permission of the primary lender to do this.
Is an unregulated or regulated bridging loan the better option?
Neither is better, exactly. A regulated bridging loan is less of a risk, but it is also less flexible.
An unregulated bridging loan might be a little riskier, but it is also more accessible, and the lender decides the exact terms. This means you can use the money how you need to.
Unregulated bridging mortgages final overview
Yes, there is a risk attributed to borrowing money without the regulation of the FCA. However, working with a trusted loan broker from Loan Corp will minimise the risk. Loan Corp can offer sound advice and pair you with a proven unregulated lender.
An unregulated bridging loan is a fast and flexible way to get your hands on a little extra money. The freedom of the unregulated loan means that you can ask for as much as you like. If you have a viable exit strategy and a convincing business plan to back yourself up, you might get it!
Borrowing money from an unregulated lender takes away all the limits. You can borrow as much as you want and pay interest in the way that suits you best. The lender places the limitation. With a little help from Loan Corp, you can compare quotes until you find the lender best suited to your financial needs.