Bridging loans remain a popular option for individuals seeking a quick and adaptable solution for short-term finance funding. Whether you have an inheritance tax that requires payment, you are building your own home and require a self build mortgage or you need to bridge the gap between property purchased, bridging or development loans can provide a quick solution.
Though bridging loans can be a powerful tool when you require quick access to capital, not all bridging loans are the same. When applying for a bridging loan, you can either require a regulated or an unregulated loan.
As there are very few regulated lenders in the North West of England, at Bridging Finance Solutions, we acknowledge the importance of staying protected when obtaining a loan, with our loans being proudly under the oversight of the Financial Conduct Authority (FCA).
This guide will explore everything you need to know about regulated loans, including their benefits and how Bridging Finance Solutions can ensure a safe and straightforward borrowing experience.
What Makes a Bridging Loan Regulated?
For a bridging loan to be considered regulated, it must first meet strict criteria.
FCA Regulation
Bridging loans are regulated by the Financial Conduct Authority (FCA) when secured against a property that is or will be the borrower’s primary residence or their immediate family. Generally, regulated loans are not used for commercial properties or developments, but these developments can be secured for regulated loans upon request.
First Charge
A first charge is a legal right your lender will have, attached to your property, as security for a loan. If you default on this loan, the lender has a legal right to obtain possession and dispose of the asset. You may be more commonly familiar with regulated second-charge small bridge loans. However, in most instances, personal financial projects will necessitate a first-charge loan on the borrower’s home or the property in which they plan to reside.
Added Consumer Protection
Regulated bridging loans fall under FCA consumer protection regulations, which require lenders to follow specific practices and terms to safeguard borrowers. This additional protection can be incredibly beneficial for borrowers.
Benefits of Using FCA-Approved Lenders
If you require a short-term cash flow solution, this guide may have inspired you to obtain a bridging loan. When applying for a loan, it is important that you use the most efficient and safe solution.
As a principal FCA-approved lender, we strongly recommend using FCA-approved lenders for your security if you wish to obtain a bridging loan. Here are some of the benefits:
Consumer Protection
As we have already touched on, regulated lenders are required to follow strict guidelines as outlined by the FCA; these guidelines are in place to ensure borrowers are protected from unfair practices.
Because of this protection, all regulated bridging loans are offered with transparent terms and conditions, ensuring that people don’t agree to anything that they don’t understand. It also requires lenders to complete affordability checks to prevent any financial distress if a borrower can not afford the loan.
In the world of loans, it can be easy to feel unsafe in your decision; these regulations ensure that this is not the case and all loans are handled ethically.
At Bridging Finance Solutions, our clients are at the forefront of everything we do, which is why we ensure that our borrowers feel safe to tell us if they are having problems making repayments so that we can work towards a solution together.
Transparent Fees and Interest Rates
Unfortunately, some non-regulated lenders may hide fees or unclear repayment terms in their agreements, leading borrowers to deal with unexpected costs alongside their loan amount.
With regulated loans, any interest rates and charges that may be incurred are stated upfront, and you do not have to worry about the surprise of hidden penalties. At Bridging Finance Solutions, we take pride in providing complete cost breakdowns so our clients know what to expect.
Access to Complaint Procedures and Compensation Schemes
If any problems arise, borrowers should report complaints through the appropriate channels. By working with an FCA-regulated lender, you gain extra protection, allowing you to escalate your concerns to the Financial Ombudsman Service (FOS).
Because regulated loan providers work with regulatory bodies, this guarantees that any disagreements you encounter with your lender are settled justly and impartially.
Regulated Vs Non-Regulated Bridging Loans
Now that you know more about the benefits of working with an FCA-registered lender, here are some of the key differences between regulated and unregulated bridging loans.
Purpose and Property
The significant difference between unregulated and regulated loans is the types of property they are secured against. Regulated loans are used only in residential property, whereas unregulated loans can be secured against a range of properties.
A useful guideline is that if you intend to inhabit the property you wish to finance, you’ll qualify for a regulated bridging loan, and if not, you won’t.
Borrower
When someone obtains a regulated loan, the lender is required to carry out affordability checks and suitability checks in order to safeguard the borrower from financial distress.
With non-regulated loans, the same oversight is not required. There are still reputable lenders that operate fairly, but they are under no legal obligation to follow FCA rules, leaving borrowers possibly in a much more vulnerable position.
Interest rates and fees
Though regulated bridging loans tend to have slightly higher administrative requirements, they ensure full transparency and inform you of any potential bills that you may encounter.
In contrast, unregulated bridging loans typically provide more flexible terms; however, they may have higher interest rates and hidden fees that only become apparent when they are incurred.
Protection
Because the FCA does not protect unregulated loans, they are not offered the same protection and support as regulated loans. As regulated lenders, we understand the value of this additional protection for the peace of mind of our borrowers.
This additional protection means that lenders can not take advantage of those in poor financial positions, and so those who require a bridging loan can apply for one with the comfort that everything is being completed correctly.
Why Isn’t Every Lender Regulated?
Due to the additional benefits that come with FCA regulations, it might be hard to understand that not every bridging lender operates under these rules.
Not every lender is regulated because of their business focus and regulatory costs. Some lenders choose not to be regulated as their lending structure does not require it.
For instance, a lender specialising in commercial and investment lending does not need FCA regulation because their loans are not meant for personal use, falling outside the FCA regulations’ scope.
To be recognised as an FCA-regulated lender, strict compliance standards must be met, which can be costly and time-consuming. Therefore, if lenders can avoid this process, they typically will. BFS are proud to be a regulated FCA lender.
Standalone Second-Charge Loans
Though Bridging Finance Solutions does not offer stand alone second-charge loans, we recognise the importance of being aware of what they offer and what they are.
A second-charge loan allows you to access substantial funds without having to remortgage or sell your property, as it can be secured against a home that already has a mortgage. Second-charge bridging loans are ideal for situations where you need extra cash.
At Bridging Finance Solutions, we can offer a second charge loan, in conjunction with a first charge, if additional funds are required and there is sufficient equity in your asset. A clear exit strategy is essential.
Choosing The Right Bridging Loan For You
Before deciding whether you require a regulated or unregulated loan, consider why you need the loan. If you are working on a personal project and intend to reside in the property you are developing or funding, you should apply for a regulated loan.
In other instances, such as commercial developments, you have room to be more open to an unregulated loan.
Financing Your Future With Bridging Finance Solutions
Through this guide, we have hoped to have given you the necessary information concerning regulated and non-regulated loans. At BFS we recognise the importance of the protection that regulated loans provide.
Looking for financial support for your latest development? Make it happen with BFS today, and get in touch with us for more information on bridging loan applications.
