A Bridging Loan is a useful way to secure funding when buying a private or commercial property. These short-term loans bridge the gap until you secure funding through your mortgage or other long-term lender.
One of the main reasons is that Bridging Loans are quicker to arrange. A recent report in the Financial Times reveals that in 2024, completion time for Bridging Loans had fallen by 23%.
It states that it takes 47 days on average to complete the loan, compared to 58 in previous years. That makes them perfect for many buyers.
For example, buying property at auction means you must have the funds available much more quickly than when buying traditionally. Also, some homeowners require funds to buy a property before they have been able to sell their current home.
There are many circumstances where Bridging Loans might work for you.
But did you know that there are two types? You need to know the difference between Regulated Bridging Loans and Unregulated Bridging Loans before applying.
Regulated Bridging Loans v Unregulated Bridging Loans
In basic terms, a Regulated Bridging Loan is a short-term loan that is secured on a borrower’s home or one they intend to buy. Unregulated Bridging Loans are short-term loans that are not secured against any property.
As with any loan, there are pros and cons and it is essential to speak to an expert before making any decision.
How Bridging Loans are Regulated
Bridging Loans that are regulated are maintained by the Financial Conduct Authority (FCA). It means the lender must work within the rules and regulations set by the FCA.
On the other hand, Unregulated Bridging Loans are not overseen by the FCA. That means they carry more risks and, as a result, higher interest rates. They’re also usually more flexible with their loan terms, which is perfect for funding commercial or non-residential property purchases. As a result, they’re ideal when property investors or small business owners need a short-term loan.
Regulated Bridging Loans: Pros & Cons
The Pros
There are many reasons why you might choose a Regulated Bridging Loan. The main reason is that the FCA protects them. It means lenders have to follow rules to protect you. Other benefits of using these loans are that they:
- Have lower monthly interest payments compared to Unregulated Bridging Loans
- Can be used for various reasons
- Offer a structured agreement
The Cons
Regulated Bridging Loans may sound perfect for you, but remember that as well as the advantages, there might be disadvantages. So, be aware before making a decision. Those drawbacks include:
- The application process can take longer than unregulated loans
- They are less flexible
- Loan amounts are often lower than those of unregulated loans
- The eligibility criteria are stricter
Unregulated Bridging Loans: Pros & Cons
These loans are a versatile solution for property developers and investors. They help them fund commercial purchases. For example, they will be used for buying the likes of office blocks or for funding commercial development projects.
The Pros
Unregulated Bridging Loans are usually more flexible about how you use your loan. There are many reasons why you might want to choose this type of loan, such as:
• They’re more versatile
• You can usually loan more money
• Accessing the loan is quicker
• Lending criteria are less strict
The Cons
It is important to remember that there are drawbacks when choosing an Unregulated Bridging Loan. This includes:
• They are higher risk
• You have lower consumer protection
• Their interest rates are usually higher
Which Bridging Loan is best for me?
As we have seen, there are pros and cons with both types of loans. It all boils down to your circumstances. You need to consider what you are using the loan for, how much you’re borrowing and how you’ll pay the loan back.
Speak to a specialist in Bridging Loans before you make your decision. Contact us today, where our experts are on hand to guide you through the process.
