Bridging loans are a type of short-term loan, that are usually arranged within a short period of time and are designed to ‘bridge the gap’ to help people complete the purchase of a property before selling their existing home.
A regulated bridging loan is a form of short term, property-backed, loan which is secured against the dwelling of the borrower. A bridging loan becomes regulated when the loan is secured against a property that is currently occupied, or will be occupied in the future, by the borrower or any member of their immediate family.
How does it work?
A regulated bridging loan is designed to give you access to money when you need to raise it quickly in order to secure the perfect home that you are planning to live in.
Regulated loans can be either first or second charge. First charge means that it will be the sole loan secured against the property. But if there is enough equity built up in the property after a mortgage or secured loan, it can be placed behind the first charge lender.
Regulated bridging loans are regulated by the Financial Conduct Authority (FCA) and fall under the same regulation as a residential mortgage.
A bridging loan becomes unregulated when the property is being used as security for business or investment purposes and will not be occupied by the borrower or member of the immediate family. These types of loan are useful for corporate entities or properties you aren’t going to live in.
Why choose regulated bridging loans?
Getting the finance you need fast while you’re waiting for a longer-term borrowing arrangement to be made can be an attractive element of regulated bridging loans as once approval is given, the money can be made available in as little as 48 hours.
Also, bridging lenders can be extremely adaptable when it comes to arranging finance as they understand that no two borrowers are the same. They take a more holistic approach and work to understand each customer’s individual circumstances. In many cases, a bridging lender will be able to finance loans where a mainstream mortgage provider would not.
How much can I borrow?
Regulated bridging loans, usually start at around £37,500 going up to £1 million. The term of the loan can be as short as one day usually up to a maximum of 12 months to provide you with a short-term financial solution.
Things to consider
When it comes to any form of borrowing, it’s important to consider every aspect of it – as there are potential risks that come with bridging finance. It’s important to be aware of all the fees involved so you are aware exactly what you will have to pay. But more importantly, you need to be aware of the interest rate – this will be charged monthly not annually, so even a small change can make a significant difference to the total cost of your loan. Also, as it’s a shorter-term loan, the interest rate will be higher.
Why seek specialist advice
Bridging loans are designed to help people complete the purchase of a property before selling their existing home by offering them short-term access to money at a high-rate of interest. But overall bridging loans are fast, flexible and effective short term funding which can be used for a wide variety of purposes, be it refurbishment or property purchase.
As there are so many different types of bridging finance loans available, it can be easy to get confused by it all. You also might not be aware that most regulated bridging loan lenders only work with brokers and do not lend to the public directly.
Also, a good broker will help assess your circumstances and be able to recommend the right loan based on your needs and circumstances.
If you’d like to find out more about bridging finance loans, do not hesitate to get in touch.