The difference between regulated and unregulated bridging loans

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Regulated and Unregulated Loans – What you should know.

Bridging loans, or bridging finance, is a type of short-term loan which is designed to allow you to utilise your current property’s equity to help buy another property, or make refurbishments. Your existing property acts as the ‘collateral’, allowing you to buy your new home without needing to sell your current property.

The benefit of a bridging loan is that you’re less likely to miss out on purchasing your new property because it helps you to move quickly. You don’t need to wait for your current property to sell before you can complete the purchase.

For refurbishments, the fact that the interest is rolled up and repaid at the end of the term of the loan helps developers with their cash flow.

When it comes to bridging loans, it is important to understand that there are a few different types of bridging finance available. While each type of bridging loan offers short-term finance, each differs slightly in regards to how they are secured and how the repayment process works.

Two of the most common types of bridging loans are regulated and unregulated bridging loans but what’s the difference and how do you know which is best for you?

What do the terms ‘regulated’ and ‘unregulated’ mean?

Put simply: a regulated loan is regulated by the Financial Conduct Authority (FCA), whereas an unregulated loan is not. Regulation means that consumers are protected from incorrect advice or miss-selling from lenders or brokers.

Unregulated bridging loans don’t have this protection.

Who would be likely to need each option?

While the majority of loans and mortgages are regulated by the FCA, there are some loans that are not. This is because this protection is made exclusively for consumers and their own homes.

However, mortgages or loans used to purchase any kind of commercial or business-related property tend to not be regulated by the FCA.

How do you apply?

To apply for a bridging loan, there are a number of things to consider. To streamline the process and make it simpler and easier, we have a contact form that you can use to start the application process. We are also on hand to discuss the ins and outs of bridging finance, should you want to gain a better insight into the process and how these loans work.

What kind of information do you need to know?

When it comes to applying for a bridging loan, it’s important to ensure that you properly understand the ins and outs of the process of applying for a loan and whether a regulated or unregulated bridging loan would be best for you and your specific circumstances.

Speaking with a financial adviser may be a useful step to take, if you’re unsure which product is most suitable. Often speaking with a mortgage specialist can be extremely useful for providing clarity and a better understanding on what would be best for your specific financial situation.

Are there any risks involved?

Like most financial products, bridging loans do come with some risk. One of the drawbacks of a bridging loan is the fact that it is secured against your own property, this means that if you are unable to meet the repayment criteria, you could risk losing ownership of your current property.

Whatever you put up as collateral is at risk of being repossessed by the lender, should you struggle to make your loan repayments on time as agreed when taking out the loan. It’s important to be aware of this before you agree to the loan, because once you have accepted the loan terms and conditions, you are then bound by the terms of the agreement.

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*Privacy Notice - Any information provided will be treated with confidentiality and will only be accessible within Ascot Mortgages