If you’re considering applying for a bridging loan, an understanding of key bridging loan regulations could prove helpful. Bridging loan regulation in the UK isn’t a particularly complex subject but should be factored into the decisions you make when choosing a lender.

The FCA took control of all aspects of bridging loan regulation in the UK as of April 2014. At which time, control of all CCA loans was transferred to the FCA. This resulted in various changes to the prior regime, affecting eligibility for certain borrowers.

What is a regulated bridging loan?

A bridging loan is formally classified as ‘regulated’ when the loan is issued against a property that is currently (or soon to be) occupied by the applicant or a close member of their family.

Both first-charge and second-charge regulated bridging loans are available, which means that the loan can either be the sole loan secured against the property (first charge) or secured ‘behind’ an existing loan on the property, such as a mortgage (second charge).

Regulation of bridging loans: two classifications

There are two primary classifications of FCA-regulated bridging loans available in the UK, which apply to loans provided for different purposes.

The first classification encompasses bridging loans regulated by the Financial Conduct Authority by reference to its MCOB Rules, known as a ‘regulated mortgage contract’. This classification applies to loans secured by way of a first charge over the applicant’s home or the home of a close family member or spouse.

The second classification of FCA-regulated bridging finance applies to loans that are secured by a second charge over the applicant’s home or the home of an immediate family member. This type of loan is regulated by the FCA by reference to its CONC Rules and is known as a ‘consumer credit loan’.

The bridging loans regulated by the FCA must be secured against property owned by the applicant, which they either currently occupy or intend to occupy in the near future. The primary condition of these regulated bridging loans is that the owner (or a close member of their family) occupies at least 40% of the property and is their primary residence.

Hence, the property must be used primarily as a place of residence rather than as a commercial property or business venture.

Accessing the best deals on the market

Here at UK Property Finance, we work exclusively with top-rated lenders from across the UK. We provide access to exclusive deals and discounts on fully regulated bridging loans for all purposes. By carrying out a whole-of-market comparison, we’ll ensure you’re provided with an unbeatable deal to suit your requirements and your budget.

If you have any questions regarding bridging loan regulation in the UK, we’d be delighted to hear from you. Contact a member of the team at UK Property Finance today for an obligation-free consultation.

Moving home can be stressful enough without the added stress of selling two properties rather than one. Finding your dream home can be a once-in-a-lifetime experience that few get the opportunity to enjoy. A couple looking to relocate to the coast had found the one, but time was of the essence. The clients had two properties on the market that they needed to sell in order to buy them; however, their dream property wouldn’t wait.

Afraid they were going to lose the house, the couple needed to find a way of becoming proceedable while they waited for a buyer to come along for theirs.

The clients approached UK Property Finance with their brief, and the team set about looking for a bridging loan that could secure the forever home. The current two properties owned by the couple could be used as security against the loan. A lender had been selected on the grounds that they required a comfort charge on the second property as the equity from both properties was needed for the exit of the bridging loan. Having a comfort charge instead of a standard charge on the second residential property reduced valuation fees and made the application quicker, particularly as the couple were keen to secure their next property so quickly. The couple had already exchanged contracts, which meant they were legally bound to timescales and risked losing their deposit if they did not complete them.

The team at UK Property Finance were told at the beginning about the tight deadline, which allowed them to prompt all parties to keep things moving. Successfully, UK Property Finance managed to complete the process a day ahead of schedule, allowing a day to move funds. Throughout the process, the clients were given regular updates, so they knew each milestone and knew we were achieving their target. The couple is now living their best lives in their new home, all thanks to our ability to find a lender with a market-leading rate not available from many other brokers with a comfort charge instead of a full charge on the exit.

If you would like to find out how UK property finance could do the same for you, then please email us at [email protected].

Clients often have challenging deadlines in unusual locations, and this case is no exception. In recent years, we have dealt with some fairly unique properties, but an old telephone exchange is certainly a first. On a wind-swept hill in Buxton, Derbyshire, our client was nearing completion, having already made the property wind- and water-tight. Unfortunately, due to the length of the task at hand, he had overrun the loan term agreed upon and consequently found the site being reposed by the bridging and development lender. Alarm bells certainly began to ring for the eager investor as the receiver was looking for an early auction sale to recoup the current lender’s loan. Our plucky investor felt this project could continue if he could get a resolution through UK Property Finance. The odds were greatly out of favour, and his good credit history faced being decimated because the loan had been given a personal guarantee for repayment. If it became public knowledge that this was now a repossession, the prospective profit gained would be eradicated by the achieved sale price and mounting costs.

The anxious investor knew where to turn with a phone call to UK Property Finance following a recommendation from a fellow developer. Understanding the depth of the issue over a lengthy conversation with our advisor highlighted the lack of equity in the project. Additional security was required to enable the buyback and complete the remaining work. Family can always be relied upon to send in the cavalry when the going gets tough. The clients’ sister managed to offer a lifeline with her residential home as security regardless of having a mortgage already against the property.

Grit and determination certainly paid off when we obtained a finance agreement in both names to repay the current bridging loan with a bridging loan secured via a first charge across the development site and a second charge on his sisters’ property. In dramatic fashion, the client managed to halt the auction, going ahead with the funds to complete the project. The pressure has subsided, meaning the client could focus on completing the project to maximise profits. His sister not only got to help her sibling in desperate times but also had the charge released from her property and a welcome financial bonus for her trouble.

The complexity of this case and the time scales bearing down meant UK Property Finance had to strategically and carefully select the ideal lender for this case. A fantastic result for everyone involved, and the investor lives to fight another day.

There are many situations where it is important to be able to secure financing in a timely fashion. In the business world, you will need to be able to act quickly in order to be able to make certain investments. You may also require funds just to cover certain operational costs while waiting for more funds to come in. If you are in need of money fast, then you might want to consider bridging a loan.

For those who aren’t in the know, a bridging loan refers to securing short-term financing. These are quick loans that allow you to receive funds quickly so that you can get by. You will then be able to take the time to secure a more permanent financing solution while paying back the short-term loan within the agreed-upon parameters. There are many benefits to bridging a loan in this fashion, but there are also negative aspects that you should consider.

Why do people use bridge loans?

One of the most common reasons that people decide to look for short-term financing solutions is that they want to make an investment. Sometimes, opportunities present themselves, and you need to be able to strike right away. Real estate investment opportunities are a good example of this. Having the ability to get the money that you need quickly is essential if you want to be able to purchase a hot property.

The pros of bridging a loan

When you need to finance something quickly, it is important that you are able to get access to the funds in a timely fashion. Short-term loans can work to get you what you need as fast as possible. There are generally two types of short-term loans that you can sign up for. There are closed loans with a fixed repayment date and open loans that have greater flexibility.
Those who need to make a quick investment or who are trying to buy a property will be able to easily access closed loans. You set up a date for repayment, and everything works out very smoothly. Open loans are more common when you have yet to figure out the details of when you can close on a property. This is a little bit more ambiguous, as you won’t know when you will be capable of repaying the loan yet, but it is good to have flexible options.

The cons of bridging a loan

Bridging a loan can be more expensive than getting a traditional loan. You will be paying for the convenience of getting the funds that you need so quickly. Bridging loans are a short-term financing option that is only to be used for specific purposes. It isn’t something that you will want to use regularly, as you’ll be paying significant amounts of interest on this loan type.

Also, if something goes wrong with your investment, you could be stuck with a costly loan and no way to pay it back. This can be a bit of a high-risk loan situation if you don’t know what you are doing. It is important to only use bridging loans to get by when you know that repayment won’t ruin you. Take all the possible outcomes into consideration before deciding to move forward.

Is this worth doing?

Bridging a loan is worth doing if you need to be able to secure financing quickly. It comes down to what options are available to you. If you have an open credit line elsewhere that you can use, then you should probably go with a more traditional financing option. Those who need to secure the money fast will find that bridging a loan can be worthwhile. You may wind up paying quite a bit of interest, but it can still be an effective means to an end.

The UK’s’slternative finance industry is worth £4.6 billion, yet the majority of British property buyers are not aware of the many property purchasing options available to them. The majority of property buyers since 2007 have purchased their properties either through cash or mortgages. A survey carried out by the bridging lender has evidenced a lack of understanding or knowledge of alternative finance options available in the market.

Since 2007, 42% of properties sold have been to cash buyers, and 52% have used mortgages or remortgages. One in five homeowners has confirmed having used alternative finance such as unregulated loans, crowdfunding, and mezzanine finance towards the purchase of properties. Only 13% have used bridging finance, and this increases to 21% of second home buyers.

Due to the many options available in the market for finance or people’s lack of understanding or knowledge of these products, many home buyers have relied on a broker to help them find a financial product best suited to their needs. The lack of knowledge or understanding of other financial options has meant much reliance on mortgages and cash purchases. Research suggested that the buyers would have liked to have considered other financial products but feared that they might lose the property if they delayed making a credit decision. Nearly 50% of the researched group were not aware of or had a strong understanding of bridging loans or the situations in which these loans could be used.

The past decade has seen a rise in alternative finance options available to buyers or better suited to their needs, yet research demonstrates a lack of awareness or understanding about what these options are and how to use them.

It is important that buyers are aware of the financial products available to them so that they can make better-informed choices, placing them in a better position to purchase a property quickly and efficiently. There are many alternative finance options in the market, and to remain reliant on mortgages is restricting the ability of clients to get the funds they need.

This industry has seen prices become very competitive due to the entry of new specialised lenders, so it is ever more important to educate people on what’s available in the market so that they can make an informed decision before they invest.

The Council of Mortgage Lenders has again released figures showing that annual bridging lending has increased by 25% and now stands at around £2.5bn per year. Bridging loans are  becoming widely accepted as a tool for accepting clients’ short-term funding needs. The main advantage of bridging loans is that they can be arranged quickly when the client’s need is particularly urgent.

Bridging finance deals are often arranged at a fast pace, so a client needs to be sure they are getting good advice. It is important that when talking to a lender, an answer can be given right away, which is why speaking to a specialist bridging loan adviser is best. The increase in prevalence of bridging leads has led to a growing number of specialist brokers for this market. Some mortgage brokers will try to service the deal themselves, while others will pass the inquiry onto a specialist.