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Regulated Bridging Loan – what to expect
There are many types of bridging loans and many lenders. Some loans are regulated while others are not: what does that mean in practice, and what should you borrowers look for?
What is a regulated bridging loan?
A ‘regulated’ bridging loan means that it comes under the Financial Conduct Authority. The FCA is a body that protects consumers by making sure that financial products meet a detailed set of guidelines.
A bridging loan is regulated when it is taken out against a residential property that the borrower either lives in now, or intends to live in. An example would be where your bridging loan will allow you to buy a property at auction which you will then move into.
Loans secured against any non-residential property – such as a Buy to Let residence, commercial property or farmland – are unregulated bridging loans. That means they do not come under the FCA’s remit.
What are the benefits of regulated bridging loans?
Generally, financial services and products authorised and regulated by the Financial Conduct Authority are a safer place for your money.
The FCA requires lenders to meet many regulations and rules, and issues large fines to companies that fail to deliver. If you feel you have been missold a regulated bridging loan, or have been treated unfairly, you can complain to the Financial Ombudsman Service and seek compensation.
As a product, the main benefits of bridging loans are that they are a fast way to borrow a large sum of money. They can be a good option if you need to move quickly and a mortgage will take too long. They are flexible products that you can design to meet your needs.
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Giving you peace of mind while you sit back and let us do all the work for you while finding you the best deal for your financial situation.
How much does a regulated bridging loan cost?
As high value, short term finance, a bridging loan is a more expensive way to borrow than a mortgage. There is normally an arrangement fee of around 2% of the total loan – so to borrow £500,000 the fee alone will be £10,000.
Interest rates are comparable with mortgages, but note that lenders will charge monthly interest, so it is much cheaper to pay back the loan quickly than keep it long term. The maximum length of a bridging loan is usually 12 months.
Is a regulated bridging loan right for me?
As with all secured loans, it’s important to think carefully about the risks involved, because if you cannot repay the debt, you could lose your home.
FCA regulated bridging finance can certainly help people achieve their property goals. Typical situations to take out these loans include:
- Buying property at auction, where you need to pay in full within 28 days
- To complete a house purchase when your existing property has yet to sell
- Buying a non-mortgageable property for renovation
There are various pros and cons to consider depending on your specific situation, so seek expert advice.
What are the alternatives to a regulated bridging loan?
There are other ways to borrow money for property that may or may not suit your circumstances. Examples include:
Unsecured Lending – Personal loans, credit cards or bank overdrafts may be an option to raise funds, up to a limit of around £30,000. Interest rates could exceed those of secured loans so make time for careful comparison.
Remortgaging – You may be able to remortgage your current property to access equity. This will be a cheaper way to borrow in terms of interest, but there may be arrangement fees and valuations fees to factor in
Second Charge Mortgages – A second charge mortgage is a way to take out a loan on a property that is already under a mortgage.
Specific Purpose Loans – There are specific financial products available for certain circumstances, such as property development finance and equity release products which may be suitable, depending on the project you have in mind.
Speak To An Expert
Giving you peace of mind while you sit back and let us do all the work for you while finding you the best deal for your financial situation.
How can GPS Financial help?
As an experienced team of property finance experts, we’re here to help you explore all the options to achieve your plans. We will get to know you and your situation and recommend the most cost-effective way forward.
If this kind of loan is your preferred option, we will compare products across various regulated bridging lenders to find you a competitive deal that meets your needs. We’ll make sure you fully understand the product and work on a plan with you to repay the loan as quickly as possible.
We are fully regulated by the FCA and registered in England and Wales. For an initial chat about how we can help, contact the team today.
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