Are you a property investor quickly closing a deal or a developer transitioning between projects? Recognising the difference between regulated and unregulated loans is essential, as many investors and business owners, depending on their purpose for the loan and property type, may depend on unregulated loans to fund their latest venture.
At Bridging Finance Solutions, we provide both regulated and unregulated property finance, giving us more flexibility in supporting investors and developers. In this guide, we will clarify the term “unregulated bridging loan” and highlight that it’s not a choice but a label assigned based on your circumstances.
Keep reading to find out how to determine which category applies to your situation.
What Makes a Bridging Loan Regulated
A regulated loan, often used for residential property ventures, is secured against a property that the borrower or their immediate family currently resides in or plans to reside in. Regulated loans fall under the oversight of the Financial Conduct Authority (FCA).
Regulated loans tend to be for personal, non-business purposes, and it is less likely for a commercial property to be protected by the FCA. For a deeper look at how regulated loans work, visit our understanding regulated loans page.
What is an Unregulated Bridging Loan?
An unregulated bridging loan is a short-term, fast-access loan secured on property that the borrower or their family does not live in. It is commonly used for investments or business purposes, such as buying a buy-to-let property, refurbishing a property, or purchasing at auction.
Unlike regulated loans, these are not controlled by the Financial Conduct Authority (FCA), which provides more flexibility in lending terms but offers fewer protections for consumers.
Regulated vs Unregulated: The Key Differences
There can be a lot of confusion about the differences between regulated and unregulated bridging loans, but once you understand them, you can determine which loan type fits your personal needs and circumstances.
Who It Applies to
Unregulated loans are for investors, developers, and commercial borrowers who seek to use the property as a business opportunity, while regulated loans tend to be for those looking to develop a residential property for their own use or that of their immediate family.
LTV
A Loan-to-Value ratio is the percentage of a property’s market value that a lender will finance and is calculated by dividing the loan amount by the property’s value. This is used to measure lender risk, and properties with higher LTVs tend to require more security and often come with higher interest rates.
With regulated bridging loans, you can often expect LTV rates of around 70%, while you can expect higher rates in some cases with unregulated loans, and some lenders may even request additional security on top of the investment, depending on the perceived risk of the transaction.
Speed
Regulated loans can take a little longer to obtain because the lender must complete FCA compliance checks, whereas this is not necessary for unregulated loans.
At Bridging Finance Solutions, we can often issue a decision in principle the same day and make an offer within hours, with funds typically drawn down in days rather than weeks (often around seven to ten days, subject to the legal process). As long as your application contains all required information and the project is feasible, fast turnaround is achievable on regulated cases too. Get in touch with our expert team for further details.
Documentation
There are some big differences between the documentation required for regulated and unregulated loans. When reviewing the documentation for a regulated bridging loan, there is greater focus on borrower affordability and the applicant’s income to ensure the loan can be repaid feasibly; all documentation must comply with FCA rules and follow a standardised application format.
In contrast, rather than a clear focus on proving income, exit strategy is a priority for unregulated loans. That’s not to say exit strategies aren’t crucial aspects of regulated bridging loan documentation, but in unregulated loans, they take priority over everything in the application.
In unregulated loan applications, there is heavy emphasis on property value rather than the borrower’s personal financial status, and the property in question, whether sold or rented, will be the most likely exit strategy from the loan. For guidance on what common mistakes to avoid when pulling your application together, take a look at our guide on 5 mistakes to avoid when applying for a bridging loan.
FCA Oversight
When you obtain a regulated loan, the conditions of your loan have complete FCA oversight, and you receive full consumer protections because of this, whereas if you have an unregulated loan, you are not offered the same protections.
Regulated and Unregulated Bridging Loans: How BFS Can Support You
With this guide, you should now have a better understanding of what unregulated loans are and the circumstances in which they can and should be used; more often than not, the borrower doesn’t have a choice in the matter.
At Bridging Finance Solutions, we provide both regulated and unregulated bridging finance. Our regulated mortgage lending is offered through BFS Home Loans, which is authorised and regulated by the Financial Conduct Authority, while our investment, auction, development and commercial bridging sits outside FCA regulation, as is standard for business-purpose lending.
If you are looking for a cash injection for a new development, refurbishment or investment, you are in the right place. As an FCA-authorised principal lender, BFS provides fast bridging and development finance across England, Wales and Scotland. Get in touch with our team today to talk through your project.
