fbpx Mortgages and Furlough: How to get a mortgage after being on furlough. Read more Chevron
Arrow Arrow
Scroll to top

Are unregulated bridging loans safe?

No impact on credit score

Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: August 9, 2021

There are a lot of people who ask if unregulated bridging loans are safe. Paulo asks the question below as he is considering one for a purchase, but wants to know if its safe to do so. I answer Paulos question in depth below.

Feefo badge

Question

Hi Pete,

I’ve been running a business from home and it has now grown to the point where I need to expand into a dedicated trading premises. I’d prefer to own my own office space rather than rent and have seen a commercial property for sale that would be ideal.

I’ve been told that there are other interest parties looking to buy the office space, so I will need to make an offer quickly. 

I will have funds to buy it outright when a business deal I completed earlier this year pays out (hopefully in the next few months), but to make sure the property isn’t snapped up by a rival bidder, I’m considering using a bridging loan to purchase it in the short-term. My plan is to use some of the proceeds from my business deal to settle the debt at the end of the term.

The only thing that’s putting me off is something one of my colleagues told me. She pointed out that bridging loans are unregulated. Does this mean that they’re risky and unsafe?

Thanks,

Paulo,

London

Answer

Hi Paulo,

Thanks for getting in touch. Let me start by clearing something up for you: the fact that bridging finance is usually unregulated does not mean it is in any way dodgy.

When a bridging loan is being used for commercial purposes, the deal needs to be unregulated to allow extra flexibility. Commercial lending has to be bespoke and tailored to the needs of the individual, and this has all kinds of benefits. For example, somebody using a bridging loan to buy an investment property could land a deal based on rental potential rather than their income, which may be a lower figure.

That isn’t to say that bridging loans are without risk. If your exit strategy fails to pay out, exit fees and penalties tend to be significantly higher than they are for mortgages, and a term extension could also prove costly since interest rates are usually steep.

Where your application is concerned, you will want to be absolutely sure that the business deal you mentioned will be paying out the necessary amount within the required timeframe, since that’s your exit strategy and the whole deal will be riding on this.

If you feel uncomfortable with the level of risk, it’s always worth speaking to a bridging finance broker. They can assess the level of risk for you during a free, no-obligation chat and make sure you get the best deal, if you choose to proceed.

Best of luck,

Pete


You can read more questions and answers about regulated bridging loans here:

Ask a quick question

We can help!
We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in Bridging Loans Mortgages
Ask us a question and we'll get the best expert to help.

1 of 3
£
£
£
2 of 3
3 of 3 Send!

About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the 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 information 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.

Maximise your chances of approval, whatever your situation. Find the right bridging finance broker

Get the ‘YES’ you’ve been waiting for 👍

Increase your chances of approval with an expert!

Our broker matching service will match you to a real human being who’s a specialist in your circumstances – for free!

Your expert will find you the best deal that’s right for you and be with you every step of the way.

Get Started