Regulated Bridging Loans: What You Need to Know

Bridging loans are a powerful form of property finance, and they’re growing in popularity and use.

At Clifton Private Finance, we have helped many clients secure the bridging finance they needed to seize property opportunities.

But there’s a difference between a regulated bridging loan and unregulated bridging finance. Where regulated bridging finance provides certain protections for the borrower, unregulated bridging loans can be more flexible.

With access to the entire UK marketplace of bridging finance lenders, at Clifton Private Finance, we know the difference.

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What Is a Regulated Bridging Loan?

A regulated bridging loan is subject to financial regulations and oversight from the Financial Conduct Authority (FCA), an independent public organisation that sets the standards for lending across the UK to protect both borrowers and lenders.

FCA approval provides confidence for borrowers, who are able to proceed with the knowledge that the lenders are following well-established guidelines and will be held accountable should a problem occur.

For bridging finance, regulation exists for the residential sector, protecting consumers and providing additional guardrails to bridging loans when buying property to live in.

It is not needed for commercial undertakings, creating a more flexible and often faster-moving unregulated bridging market for those looking to optimise the funding for their business venture.

A regulated bridging loan is:

• Used to finance the purchase of a new residential home for owner-occupation
• Used to fund the renovation or refurbishment of an existing residential home that is owner-occupied
• A regulated bridging loan is not applicable when the property is bought for commercial purposes.

Regulated loans come with mortgage-style protections, which means that affordability testing and appropriate loan-to-value levels are maintained. It also allows the borrower to seek support from the Financial Ombudsman Service (FOS) should they need to make a complaint about the lender.

Lenders who offer regulated bridging finance are FCA-approved, showing that they meet the necessary level of compliance.

Conversely, unregulated bridging loans do not include these additional consumer protections and may offer lenders greater flexibility around affordability assessments.

Whether a bridging loan is regulated is determined by the use of the property rather than borrower or lender preference - it’s not possible to choose to obtain an unregulated bridging loan to buy a property you intend to live in, nor can you insist on regulation for a commercial bridging loan.

Regulated vs. Unregulated Bridging Loans

Bridging finance used for development can fall into either category depending on the circumstances, with land purchases and development funds for self-build projects, where you or a family member intends to live, potentially requiring an FCA-regulated bridge.

5 Situations Where Regulated Bridging Loans Are Suitable

Bridging finance is typically used as a temporary funding solution to help overcome timing challenges or tight restrictions that can make getting a mortgage on a property difficult.

Later, once the mortgage process is complete, a residential mortgage is used to pay off the bridging loan as the borrower's exit strategy.

Regulated loans typically have a maximum loan term of up to 12 months, while unregulated options can run to 24 months or more depending on the lender and circumstances.

The following are some of the more common situations that can be overcome through the use of regulated bridging loans.

1. Chain Break

If you are part of a property chain, having your buyer pull out can put your onward purchase at risk. Delays that are not your fault can potentially see your ideal home bought by a second-choice buyer.

A bridging loan provides funds quickly. Secured on both your existing property and the new home, the full sum required can be raised as a bridging loan, with the borrower’s exit strategy typically relying on the sale or refinance of the secured property as part of this short term funding solution, even where the same property remains central to the security.

Using a regulated bridging loan to create a property chain break will reduce your reliance on your buyers, allowing you to move into your new home even if yours has to return to the market.

2. Buying Before You Sell

It is possible to buy before you sell with a bridging loan. Similar to a property chain break, obtaining a regulated bridging loan that is assessed against your secured property and, in some cases, the same property being purchased will provide the funds you need to buy your dream home without delay.

This provides a wider window to sell your old home, improving the chances of getting a better offer and making for an easier move.

If there is an existing loan on the property, the bridge can also be used to clear it, and many deals roll interest into the gross loan so there are no monthly payments before sale, making the overall cost clear from the outset.

Once your previous home is sold, the bridging loan is settled from the proceeds.

With help from a Clifton Private Finance adviser, you can negotiate the timings necessary to move your mortgage or obtain a better deal, putting you in the best possible position when everything is completed.

The video below is a case study of how our client used a regulated bridging loan to buy a house before selling their current home:

3. Downsizing

When you downsize, you gain from the difference in property prices. With your old property value typically higher than the planned purchase, you will be able to secure the maximum loan at a lower interest rate.

As with buy before you sell, using a regulated bridging loan to expedite your downsizing plans will help you by:

• Making sure you don’t miss out on your new dream home
• Giving you greater buying power that helps negotiations with the seller
• Enabling you to move closer to younger family without delay
• Reducing the stress involved with moving

4. Residential Auction Purchase

Most auction purchases require completion within 28 days, and a standard mortgage is rarely able to meet that deadline. A regulated bridge is faster and can be put in place within a couple of weeks, meaning you can bid with confidence on a desirable auction property you intend to live in.

The speed and efficiency of regulated auction bridging loans put you in the same position as a cash buyer, able to snap up opportunities without losing out to those able to complete property transactions immediately.

5. Residential Property Renovation

Funds obtained with a regulated bridge can be used for more than just the property purchase.

Homes that need a renovation can be purchased with a regulated bridging loan, renovated, and then refinanced using a standard residential mortgage as an exit strategy.

This provides several advantages:

• Buying unmortgageable houses: Most lenders require a property to have a functional kitchen and bathroom before offering a mortgage, many bargains can be found where a relatively minor refresh will bring the home up to standard. Regulated bridging finance allows you the opportunity to buy an uninhabitable property with the intention of living in it. You can then fix it up so it’s suitable for a residential mortgage.
• Providing renovation funds: If you need more money than just the property asking price in order to modernise the home, then a regulated bridging loan is a suitable solution. Secured on both your old home prior to its sale and your new property, the regulated bridge may offer greater flexibility than a standard residential mortgage.
• Living comfortably: When you buy a new home in a state of distress with the intention to renovate, you need somewhere to live while you complete the work. Using a regulated bridging loan, you don’t have to move out of your old home until the new one is finished and beautiful. You won’t waste money on temporary rentals or suffer the discomfort of having to winter in a caravan in the garden.

If you are considering buying a new bargain house and turning it into your perfect home, speak to our specialist property refurbishment finance team.

When Is a Regulated Bridging Loan Not Suitable?

The core difference between regulated bridging finance and unregulated bridging loans lies in owner-occupation.

In its simplest form, regulated loans are available when you or a family member plans to live in the home, and unregulated bridging loans are used when it is an investment, either as a buy-to-let or a house flip project with a planned immediate sale.

This is short term funding, and if you do not repay as planned you could lose the home used as security.

The following are examples of property types where unregulated bridging loans are used:

• Buy-to-let auction purchase: If you are buying at auction with the aim to renovate and become a landlord, then a regulated bridging loan is unsuited. However, bridging remains a powerful tool that meets auction speed, helping property investors access capital quickly, so an unregulated loan can be a flexible solution for this.
• Buy-to-let property renovation: Obtaining funding to refurbish an investment property can be done through either unregulated bridging or a specialist buy-to-let remortgage, including where funds are needed to clear an existing loan or unlock equity release.
• Commercial property investment: Commercial, semi-commercial, and mixed-use investments, including commercial properties and commercial premises, lie outside FCA regulations. These business ventures, which include some development projects, require unregulated bridging loans.
• Property portfolio expansion: Property professionals, property developers, and landlords growing a portfolio may use unregulated bridging loans for capital needs across acquisitions and other business purposes, while specialist portfolio mortgages can suit longer-term plans.

How to Get a Regulated Bridging Loan with Clifton Private Finance

Regulated bridging finance is not usually available directly to the public, while unregulated bridging is generally used for an investment property or for business purposes rather than a main residence.

To meet regulations, you must use an FCA-authorised broker, like Clifton Private Finance, to go through the lending process and submit an application to a specialist lender.

Our specialist bridging team will work with you to obtain suitable finance, ensuring you get the consumer protections that you need for a residential property purchase and that each regulated case is handled with care.

We work across a wide lender panel that includes specialist lenders, private banks, and challenger banks; helping clients build long term relationships based on clear advice and dependable service.

The application process will usually require full documentation, and lenders may also review adverse credit depending on the circumstances. Lenders will typically need to see:

• Proof of income
• Proof of identity
• Documentation that details your exit strategy - for example, the sale of your current home or an existing mortgage agreement in principle for the new property

Working with the FCA-approved regulated bridging lenders in the UK, we will help you compare interest rates, arrangement fees, broker fees, the overall cost, and the right loan amount for your plans before securing the rapid funding you need. Typically within 14 to 28 days.

For the best regulated bridging loan deals, speak to a Clifton Private Finance specialist today.

Get a Bridging Loan Quote

Complete the simple form to receive tailored bridging finance options.

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