Regulated bridging loans are used to purchase property you are living in or intend to live in. The Financial Conduct Authority regulates the loans and has strict rules that lenders must abide by.
Unregulated bridging loans are usually taken out by businesses for property that they are not going to live in. This can include commercial property and buy-to-let residential property bought by landlords.
What are regulated residential bridging loans?
Residential bridging loans are regulated short term loans that are generally used to purchase property quickly.
A residential bridging loan can be used when a property buying chain breaks down. For example, the buyer of your existing house may pull out, leaving you without the finance needed to buy your new home. A bridging loan can be used to complete the sale of your new home, then repaid after a new buyer has been found for your home.
Residential bridging loans can be used to purchase property at an auction. The payment for properties sold at auctions needs to be paid 28 days after the auction. This can be too short a time to complete a standard mortgage application, so a bridging loan can be used to pay for the property, then repaid once the standard mortgage funds are available.
A regulated residential bridging loan can only be used as a first charge loan. This means that it cannot be used for residential property you already have a mortgage on.
Completion of the bridging loan application can take from 3 days to 3 weeks. The loan period is normally between 1 month and 12 months. Most lenders will not charge a fee for early repayment.
The borrower or their immediate family need to occupy at least 49% of the property.
What are the benefits of regulated bridging loans?
Bridging loans are great if you need money quickly and are flexible, because they have a number of uses. When you apply for a bridging loan, all fees and interest charges are clearly set out. There are no hidden fees or early repayment charges.
Loan application decisions are based on the value of the property secured for the loan. This is normally the property you are purchasing with the bridging loan. Lenders regard the value of the property as more important than the credit score of the borrower; however, if the borrower cannot repay the loan, the property could be at risk.
The exit strategy
The lender requires a detailed exit strategy. This is a plan of how and when the loan will be repaid. Exit strategies can be based on the sale of property, the completion of a standard mortgage or cash arriving from another source. As long as the lender is convinced that the exit strategy is sound, they are liable to approve the bridging loan application.
How do I find out more?
For more information about regulated bridging finance, talk to Ascot Mortgages. We can answer all your questions and arrange a regulated bridging loan