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FCA Regulated Bridging Loans

The key details you need to know about regulated bridging loans

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 21st February 2020 *

Bridging loans (also known as bridging finance) are popular with landlords and developers in because of how flexible they can be and how quickly they can be arranged.

They can be a great way to buy the property you want when you’re waiting for your current home to sell. This makes them a great option for many residential house hunters who can benefit from using regulated bridging loans.

We’ve put together this guide to regulated bridging finance, read on for all the details or click the link to jump to the information you want:

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Are bridging loans FCA regulated?

While most residential bridging loans are regulated by the Financial Conduct Authority (FCA), this isn’t the case with all bridging finance.

In fact, a lot of UK bridging finance lenders are unregulated as they lack the permissions and specific knowledge to operate in a regulated environment.

The FCA oversee residential bridging loan regulations and are on hand to handle bridge loan complaints from borrowers who might feel they have been the victim of mis-selling or bad advice, among other things.

What’s the difference between regulated (residential) and non-regulated bridging loans?

To put it simply, regulated bridging loans are geared towards anyone who needs the funds for a property they’re planning to, or already, live in. They are secured as first or second charges on a residential property, although second charge bridging is less common.

As we’ve already mentioned, the Financial Conduct Authority is in charge of the regulation of bridging loans for residential borrowers, and that means anyone who takes one out has protection from mis-selling and bad advice, amongst other things, under the terms of its Mortgage Code of Business (MCOB) regulations.

What about unregulated bridging loans?

Unregulated bridging loans are not as shifty as they tend to sound. In fact, they’re completely above board. This type of bridging finance is aimed at commercial borrowers who are in the market for an investment property.

Commercial lending needs to be bespoke to fit the needs of the individual borrower, and this has all kinds of benefits. For example, if you take out a loan for a buy-to-let property, it may be possible to secure rates based on its rental potential, rather than your income.

What types of residential bridging loan do companies offer?

Most bridging finance deals hinge on the strength of the exit strategy, but there are specialist lenders you should go to if any of the following applies to you…

  • You have bad credit
  • You have little or no experience in property
  • You’re looking for a deal with higher LTV (80-100%)
  • The property you’re investing in is a ‘non-standard’ type
  • Your exit strategy is uncertain

Bad credit

Some bridging lenders will be concerned about bad credit jeopardising the exit strategy, especially if your plan to settle the loan involves remortgaging. Underwriters may also be mindful of the possibility of further adverse building up during the term.

Fortunately, some providers are more sympathetic than others when dealing with borrowers who have any of the following against their name…

  • No credit history
  • Low credit score
  • Late payments
  • Missed mortgage payments
  • Defaults
  • CCJ’s
  • IVA’s
  • Debt management Schemes
  • Repossessions
  • Bankruptcy
  • Payday Loans
  • And customers with multiple credit problems

If you’re seeking a bridging loan with any of the above on your file, get in touch and the advisors we work with will connect you with the lender most likely to offer you a good deal.

Lenders for borrowers with no experience

Not all bridging lenders exclusively deal with borrowers who have experience in property development/investment.

If the project is straightforward, some lenders don’t see experience, or lack thereof, as being a factor that will impact on the exit strategy. However, if it’s a complex development - such as a project requiring a self-build mortgage, other lenders might insist on experience.

If you have no experience in development/investment, consulting with a whole-of-market advisor is recommended before taking out a bridging loan. That way, you can be sure you’ll only be connected with lenders who cater for inexperienced borrowers.

Get in touch and the experts we work with will pair you up with the bridging finance provider offering the best deals for a borrower in your shoes.

100% LTV

Most residential bridge loans come with capped loan to value. You’re unlikely to find many deals with a higher LTV than 75%, and that’s for the most low-risk deals.

However, higher LTV loans do exist and the easiest way to get one is by securing the loan against more than one property or asset.

There are a number of lenders who would be happy with a borrower putting up multiple forms of security, but you should be aware that this will likely involve having to pay additional valuation fees, and there’s also the added risk of more than one property being repossessed if you can’t settle up at the end of the term.

Non-standard property

Given how vast the bridging finance market is, it’s possible to secure a loan for virtually any property type, including buildings that traditional mortgage lenders would consider ‘unmortgageable’ – perhaps because it has no electricity or is a shell of a building.

Property type will only become an issue if the lender thinks it could have an impact on the exit strategy. They might feel that ‘non-standard’ construction properties won’t sell for the required amount, and some may question whether a building in an extreme state of disrepair will ever be in a good enough condition for a remortgage.

The good news is that there are lenders out there who specialise in customers with unconventional property types, whether than means non-standard construction or an uninhabitable building they’re planning to convert to live in.

Get in touch and the advisors we work with will connect you to them.

Regulated bridging loan eligibility criteria

As we’ve already discussed, most bridging applications are approved and rejected largely on the quality of the exit strategy, i.e. how you plan to settle the loan at the end of term.

With a regulated bridging loan, the exit strategy would most commonly be shifting the funds over to a residential mortgage or selling the property in question.

Here’s what the lender will want to see you evidence…

  • That the exit strategy is achievable.
  • If it’s the sale of the property, will it sell for the required amount?
  • If you’re planning to develop/renovate, do you have the expertise to do that? The lender may ask to see evidence of past development projects as proof.
  • If the exit is a remortgage, the lender may request an agreement in principle.
  • Some lenders allow ‘non-standard’ exits such as using investments or endowments to settle the loan, but will need proof the funds are entering your account within a specific timeframe and may charge interest daily, rather than monthly.

Although exit strategy is the main factor the lender will be interested in, other variables we have already discussed in this article will affect your eligibility for a bridging loan, purely because the provider might feel that they will jeopardise the exit.

They include…

  • Whether you have experience in property:
    Some may insist on this (especially if it’s a complex development), others are accommodating to inexperienced borrowers.
  • The property type:
    Standard construction, straightforward development projects etc will be considered lower risk by most lenders
  • Your credit rating:
    Some lenders might feel bad credit will put an exit strategy at risk (especially if exit is a remortgage) but others cater for those with adverse.
  • Your deposit:
    A deposit of 30-35% of the property’s value is typically needed for a bridging loan, but if you’re in a position to put down more, this could help offset any risk associated with the deal.
  • The security property:
    Bridging loans can be secured against either a property you own or one you’re buying. The more likely it is to raise the necessary amount through sale or remortgage, the more likely the lender is to offer favourable rates. They will look at factors such as location and property type when determining this.

How much can I borrow?

As bridging finance is more flexible than other forms of borrowing, even when the loans are regulated, there is no strict cap on the amount you are able to take out. Deals worth millions are not uncommon, though certain lenders have minimum loan amounts.

Some won’t be interested if the deal is worth less than £50,000, others £30,000 and a minority £10,000.

However, since bridging is flexible and always handed out on a case-by-case basis, it may be possible to find a lender willing to let you borrow less than £10,000 with whole-of-market access and a viable exit strategy.

Can I get a second charge residential bridging loan?

Yes, although these are less common and typically come with higher interest rates than first charge bridging loans. Bad credit can also be more restrictive with these deals.

Maximum LTV is usually capped at 70% of the gross loan including the first charge balance.

What type of bridging loan do I need for a buy-to-let property?

For a buy-to-let property, you will need an unregulated bridging loan. This is because any type of investment property calls for more flexibility and bespoke business advice.

The versatility unregulated providers offer allows BTL hunters to borrow based on the property’s rental potential, rather than their income, which will likely be lower.

It is possible to get a bridging loan and the BTL mortgage from the same lender. This is known as a bridge to let application, and these usually see the borrower receive an agreement in principle on the BTL element when the bridge loan has been finalised.

The application will be subject to the same criteria as a standard buy-to-let mortgage.

Speak to an expert

For further information about finding the right bridging loan or to get the ball rolling on an application for bridging finance, call 0808 189 2301 or make an enquiry for a free, no obligation chat.

We’ll match you with one of the whole-of-market brokers we work with, ensuring that they have the right expertise to help, based on your specific circumstances.

Updated: 21st February 2020
OnlineMortgageAdvisor 2020 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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