Bridging loans come in many different forms, some of which are regulated, and some which are not. By default, bridging loans can pose a risk to businesses based on the inflated interest rate and short payment terms, so they’re not something to be taken lightly anyway, but it’s all the more important to understand the difference between regulated and unregulated bridge loans.
At Aurora Capital, we are experts in matching consumers with appropriate lenders for bridging loans, and we’ve extended our knowledge on bridging loan regulation in the short guide below.
What is the difference between regulated and unregulated bridging loans?
The main difference between unregulated and regulated bridging loans is that with regulated loans, they are, as suggested, regulated by the Financial Conduct Authority (FCA). Unregulated loans are not. This doesn’t mean that lenders offering unregulated bridging loans are unregulated, it means that the loans themselves are unregulated.
On the whole, homeowners and those who need a cash injection for residential property related matters tend to be the main users of regulated bridging loans, while property investors, developers, commercial property owners, and landlords tend to favour unregulated bridging loans due to their fast turnaround. It’s also worth noting that bridging loans can be used for most other business purposes, too.
FCA regulated bridging loans
The role of the FCA is to protect consumers and ensure there is adequate and fair competition. This applies to bridging loans. In order for a loan to be FCA regulated, it has to be secured against a property that is either occupied or will be occupied by the person borrowing the loan or family member.
Exit strategies and rolled up interest rates are typical of a regulated bridging loan. They also tend to take longer to approve, which can be the difference between securing a property or not, hence why the sector as a whole is not regulated and why regulated loans are favoured by homeowners looking to make a first or second charge against their property.
Unregulated bridging loans
Unregulated bridging loans don’t have the protection of the FCA. It’s estimated that around half of all bridging loans in the UK are unregulated. The reason they’re a popular choice is because they offer fast access to large amounts of money, are far quicker to obtain than traditional mortgages, and they are often specifically tailored to your exact needs. These factors combined mean you can finance a property or land that requires a quick sale without risk of missing out waiting for a mortgage application to go through.
Apply for a bridging loan with Aurora Capital
At Aurora Capital, we work with a wide range of lenders that offer bridging loans, both regulated and unregulated. The type of loan you go for will depend on your needs and circumstances, but if you’re unsure what type may be best for you, e.g. a bridging loan or development finance, we can help you explore all your short term finance options. We even have a handy bridging loans comparison calculator to help you find the right option for your needs.
We can talk you through the differences between regulated bridging finance and an unregulated bridging loan, as well as whether bridging loans are an ideal option for you in the first place. We can help you with the application process by providing advice on making an exit strategy and your approval chances, and we can match you with the perfect lender with the most competitive rates. Simply get in touch with us today to find out more.
Alternatively, you can apply online directly.
