Unregulated Bridging Loan Guide
Summary of Unregulated Bridging
Unregulated Bridging Loan Definition:
Unregulated Bridging Loan (noun)
A short-term credit product secured against assets such as residential or commercial properties. It offers quick access to capital, and is typically used to bridge financial gaps. Unlike regulated bridging loans, unregulated bridging loans are not subject to oversight by financial authorities (FCA) or strict regulatory guidelines. This type of loan is often used to purchase a property that the borrower or their family will not use as a primary residence.
Uses:
Auction Purchases.
Acquiring property under tight deadlines or when traditional finance is unsuitable.
Property Refurbishments.
Buy-to-let investments.
Refinancing mortgages and unsecured liabilities.
Property development.
Exercising option agreements.
Below-market-value purchases.
Overview
Unregulated Bridging loans have diverse applications and are frequently utilised by both individuals and companies in need of short-term finance for activities such as acquiring investment property, refinancing existing loans, or renovating and developing properties.
Unlike regulated bridging loans, which are overseen by financial authorities and subject to strict guidelines, unregulated bridging loans do not fall under the same level of scrutiny and are not subject to the same regulations.
An Unregulated Bridging Loan is a credit product which is typically secured against assets such as residential houses and commercial properties and serve as a short-term financial solution for those in need of quick funds, allowing the borrower to 'bridge the gap' during financial situations.
While Unregulated Bridging Loans are predominately secured against properties, bridging finance can also be secured against high-value items like watches, cars, and jewellery.
Foreign buyers, Landlords, and property investors utilise these loans for diverse purposes, including:
Acquiring a new property under tight deadlines or where mainstream term finance is unsuitable
Auction Purchases (Auction Bridging Loan)
Refurbishments
Investing in buy-to-let investment opportunities
Managing tax payments such as VAT (VAT Bridge)
Refinancing existing mortgages
Refinancing of unsecured liabilities
Property development
Exercising option agreements
Below market value purchases
Property investment strategies like BRRR, HMOs and commercial-to-residential conversions
A Bridge loan is a short-term loan used until the time a person or company can secure permanent financing or dispose of the asset.
Interest and fees are commonly deducted from the loan in advance rather than being serviced by the borrower’s income – repayment hinges on the property being sold or rented and refinanced, repaying the loan, fees and interest on exit.
Being short-term loans, typically 8 to 12 months bridging loans require a clear strategy and financial plan. Lenders will want to know about your situation, how you are going to exit, and your current financial position.
Bridging loans typically range from anywhere between £25,000 to £25m and are provided by specialist lenders. Highstreet Banks such as HSBC, Natwest, Bank of Scotland, Barclays, Halifax, Lloyds, RBS, Santander do offer bridging loans, however, they may only be available to certain clients or through specialist intermediaries as they often do not work directly with the public or have specialist partners for facilitating bridging loans.
Unregulated Bridging Loans refers to a Bridging Loan where the loan is secured against an investment property and not the residential address of the borrower or where the borrower intends to live. If you are applying through a corporate vehicle (such as a Limited (LTD) company, LLP, of foreign corporate (BVI, Jersey company) your loan is automatically unregulated, however, if you live in the property lenders still might not be willing to lend to you in an unregulated capacity.
Unregulated loans are not under the protection of the FCA as there's an assumption that individuals or companies receiving the loans are knowledgeable about the contracts and finance they are entering into and their functioning, thus a lower level of consumer protection is required.
Although many bridging lenders are not regulated by the FCA, many Unregulated Bridging Lenders are a part of professional bodies such as The Bridging & Development Lenders Association (BDLA) (Previously known as the ASTL) and FIBA, which ensures lending is conducted to the highest standard possible.
Unregulated Bridging Loans: Fast and Flexible Financing Solutions
Unregulated bridging loans offer a faster alternative to traditional mortgages, enabling borrowers to complete transactions quickly. These bridging loans are provided by specialist lenders who prioritize quick turnaround times and cater to niche markets. Their inherent flexibility allows for customized loan structures tailored to individual borrower needs, making them a preferred choice for those seeking to bypass the restrictions tied to regulated bridging loans. Since these loans are not overseen by the FCA, they fall under the category of unregulated bridging loans, offering more freedom but less regulatory protection.
Regulated Bridging Loans: Financing for Owner-Occupied Properties
If you or a family member currently live in the property or plan to live there, you may be eligible to apply for a regulated bridging loan. Regulated bridging loans are secured against properties that are either occupied or intended to be occupied by the owner or their immediate family members in the future. These loans are subject to FCA regulations, offering greater protection for borrowers who plan to reside in the property.
Unregulated Bridging Loans: Key Considerations for Exit Strategies
Unregulated bridging loans provide a short-term financing solution, making it crucial to establish a long-term exit strategy. In property investment, the two predominant exit strategies are refinancing with long-term financial options, such as mortgages, or selling the asset to repay the bridging loan. Unregulated bridging lenders place significant emphasis on the proposed exit strategy when evaluating applications, so having a well-defined plan is essential.
For a sale-based exit strategy, it is vital to specify when the property will be listed and the expected market price.
For refinancing, lenders often require a decision in principle from the mortgage lender who will settle or redeem the unregulated bridging loan.
What is an UnRegulated Bridging Loan?
How much can I borrow with a bridging loan?
Unregulated Bridging Loans range from £25,000 to £50,000,000+, with the borrowing amount dependent on the asset provided as security, your financial situation, and your expertise and background.
Typically, lenders provide loans up to 75% of your property's value, although some may offer up to 80%-90% in specific situations. While there may be advertising and promotions suggesting even higher Loan-to-Value ratios (95% LTV), these are often marketing tactics from brokerages and lenders and are unlikely to materialise.
First-charge bridging loans typically offer higher borrowing amounts compared to second-charge loans and the rates are typically lower. However, second charge bridging finance can be more cost-effective depending on the loan size and your current mortgage cost.
Second charge unregulated bridging loans are typically capped at 70% LTV and range from £25,000 to £2,000,000. There are certain circumstances where bridging lenders are willing to extend to 80% LTV, however, these are considered on a case by case basis and often apply to the strongest clients.
In contrast to first charge unregulated bridging loans which cannot be secured against a borrowers primary residence, second charge bridging loans can be placed against a borrowers primary residence if the loan is for business purposes.
It's essential for borrowers to assess the overall costs of different financing options and choose the most suitable structure before finalising any decisions. In some cases, consolidating all loans and refinancing onto a single first-charge facility may lead to long-term savings compared to maintaining multiple charges over time.
What LTV can I get with a bridging loan?
In the Bridging Market, Loan-to-Value Ratios (LTVs) typically range from 70% to 80% depending on the lender, while Loan-to-Cost Ratios (LTCs) can range from 65-100%.
It's important to dispel the misconception that loans with 100% or 95% LTV or 100% Loan-to-Purchase (LTP) offers are readily available; such claims are often made by brokers and lenders to attract clients but in reality, the majority of these transactions never materialise as this strategy exposes the lender to significantly higher risk. Essentially, providing such high LTV loans would mean lenders are purchasing the property on behalf of the borrower.
To qualify for LTV ratios between 95% to 100% of the purchase price, borrowers must adhere to stricter underwriting criteria. This includes holding an option agreement or proving the capability to acquire the property below market value (BMV). However, this high-risk approach carries the potential for repossession upon repayment as valuers often anchor to purchase prices, underscoring the importance of borrowers comprehensively grasping the associated risks. Thus, these strategies should only be used by prudent professionals who are well-versed in risk management to explore such opportunities.
No Valuation bridging loans typically cap at 70% LTV but we have lenders on our panel but we have lenders on our panel who are willing to extend to 75% LTV for specific deal types, including refurbishments. This gives you more flexibility and access to greater funding options tailored to your needs.
Bridging loan providers
Bridging Loans from High Street Banks: What You Need to Know
High street banks such as HSBC, NatWest, Bank of Scotland, Barclays, Halifax, Lloyds, RBS, and Santander do offer bridging loans, but they may be available only to select clients or through specialist intermediaries and affiliated companies. These banks often do not engage directly with the public for bridging loans and may rely on specialist partners to facilitate transactions.
It's important to consider that high street banks may not always be the best option for bridging loans. Compared to non-bank lenders, banks often provide less flexibility and have a lower appetite for this type of financing. Regulatory constraints and varying levels of expertise contribute to these differences. To find the best bridging loan deal, it's advisable to compare offers from alternative lenders.
What information do i need for a bridging loan?
All lenders are going to request the following information (not limited to):
Full property details
Address
Value
Development value
Refurbishment costs
Detailed summary of the transaction and what you are trying to achieve
Your details
Home address
Date of birth
Your background (CV)
Company information (incorporation details, no outstanding filings)
Companies House link
No outstanding accounts
No outstanding confirmation statements
If your company is being liquidated or has notices, provide a full and accurate explanation - the lender will find out the real reason and decline your case if it is not in line with your explanation.
Current borrowings
Which bank
Redemption statement
Which other debts do you have outstanding?
Which debts are being repaid?
What is your strategy?
Buildings Insurance
How long is left on the term?
Is it fit for the purposes of the loan?
Is the reinstatement value correct?
Is the address identical to your other documentation
Exit
Refinance or sale
Refinance exit DIP