You’ve found a property at auction, but you’ve only got a few weeks to complete. Or maybe you’ve spotted an investment opportunity that needs some serious work before a standard mortgage is even an option.
These are the kinds of situations where unregulated bridging loans can come into the picture.
But the word “unregulated” can understandably raise a few eyebrows. It doesn’t mean there are no rules, no contract or that the loan is somehow less legitimate. It refers to the regulatory framework that applies to that particular loan.
Unregulated bridging is commonly used for property investment and commercial purposes. But importantly, you don’t simply choose whether your bridging loan is regulated or unregulated. It depends on things like the property, what it will be used for, who will live there and the purpose of the borrowing.
Already wondering what bridging finance actually is? Our guide to bridging loans covers how it works, costs and the basics. Here, we’re looking specifically at when unregulated bridging may be used.
What is an unregulated bridging loan?
Put simply, an unregulated bridging loan is short-term finance secured against property that falls outside the regulatory framework that applies to regulated mortgage contracts.
You’ll often see it used for investment properties, development projects and commercial property.
That doesn’t mean every investment or business loan is automatically unregulated, though. The full circumstances need to be looked at before that can be determined.
When might you use an unregulated bridging loan?
You’ve bought an investment property at auction. You’ve won the bid… Now you need to complete within the auction’s deadline.
That timeframe can sometimes make arranging longer-term finance difficult. Bridging finance may provide a short-term way to complete the purchase, with a plan to repay it through a later sale or refinance.
If the property is being bought purely as an investment, the bridging loan may be unregulated depending on the wider circumstances. The fact it was bought at auction doesn’t automatically make it unregulated. How the property will be used still matters:
- You’ve found a property that needs some work; sometimes the opportunity is in the property that needs a bit more than a fresh coat of paint…
It could need a new kitchen and bathroom, significant repairs or a much bigger refurbishment before it is ready to let, sell or refinance. In some cases, the property’s current condition may also mean the longer-term finance you want isn’t available yet. Bridging can potentially fill that gap. An investor could purchase the property, complete the necessary work and then look to sell or refinance to repay the bridging loan. Of course, that exit needs to be realistic. If the plan relies on refinancing later, it is worth considering what happens if the work takes longer than expected or the intended finance isn’t available.
- You’re building your buy-to-let portfolio; you find a potential rental property, but you need to move quickly to secure it.
Bridging finance could potentially be used to complete the purchase before moving onto longer-term buy-to-let finance. It can also be useful where a property needs work before it is ready to be let. Not every buy-to-let bridging loan is automatically unregulated. The borrower’s circumstances, how the property will be used and their relationship with it can all affect the regulatory position.
- You’re buying commercial property
Bridging isn’t only used for houses and flats; it can also be used for commercial property, such as offices, shops and warehouses. For example, a business might need to secure premises before its longer-term commercial funding is ready. An investor could also use short-term finance while carrying out work or putting longer-term funding in place. Purely commercial property transactions are commonly associated with unregulated finance. If a property has both residential and commercial elements, things can become less straightforward, and the individual circumstances need to be considered.
- You’re working on a property development; property projects don’t always fit neatly into the timescales of traditional finance.
There can be a gap between buying a property, carrying out work and reaching the point where it can be sold or refinanced. Bridging finance may be used to cover part of that gap. The important part is what happens at the other end. If the plan is to repay the bridging loan through a sale or refinance, that needs to be realistic within the agreed timeframe.
- You need to raise money for your business
Property can sometimes be used as security when borrowing for a business purpose. For example, a business owner may want to raise funds using a property they own. But there is an important catch here: business purpose does not automatically mean unregulated. The borrower, property being used as security, how that property is occupied and the wider circumstances can all affect the regulatory position.
Sound familiar?
If you’re looking at a property purchase, refurbishment, investment or business funding and aren’t sure where bridging finance fits, speak to the BDC team. We can look at the wider circumstances and explore the options that may be available.
Regulated vs unregulated bridging loans: what’s the difference?
The biggest difference is the regulatory framework that applies to the loan.
A regulated bridging loan falls within the regulatory framework for regulated mortgage contracts where the relevant criteria are met. Unregulated bridging falls outside that framework and is commonly seen in qualifying investment and commercial property transactions.
| Regulated bridging | Unregulated bridging |
| Falls within the regulated mortgage framework where the relevant criteria are met | Falls outside that particular framework |
| Often connected to qualifying residential property-secured borrowing | Commonly associated with investment and commercial transactions |
| Regulated mortgage requirements and protections apply | The same regulated mortgage framework does not apply |
There are exceptions and different circumstances to consider, so this table is a general comparison rather than a way to classify a loan yourself.
Does “unregulated” mean unsafe?
No. And this is probably one of the biggest misconceptions around unregulated bridging.
It simply means that the loan falls outside the regulatory framework that applies to regulated mortgage contracts. That distinction is still important because the same regulatory requirements and protections will not necessarily apply.
Whatever type of bridging finance you are considering, you should understand what you are signing up for, including the interest, fees, property being used as security and what happens if the loan cannot be repaid as planned.
Are unregulated bridging loans FCA regulated?
There are two separate things to think about here: the firm and the loan.
BDC Specialist Finance Ltd is authorised and regulated by the Financial Conduct Authority (FCA).
However, that does not turn an otherwise unregulated bridging loan into a regulated one. If the circumstances mean a particular bridging loan falls outside the regulated mortgage framework, it remains an unregulated transaction even when an FCA-authorised broker is involved.
What should you think about before using unregulated bridging?
Bridging can solve a timing problem, but it still needs a plan.
One of the biggest things to consider is your exit strategy, which simply means: how are you going to repay the loan? Maybe you plan to sell the property. Maybe you’ll refinance onto longer-term borrowing once refurbishment is finished.
You should also look at the total cost rather than focusing on the interest rate alone. Fees, the length of the loan and other costs can all make a difference.
And think about the “what ifs”. What if the refurbishment takes longer? What if the property doesn’t sell when expected? What if the planned refinance isn’t available? You don’t need to assume the worst, but you do need a realistic plan.
Not sure which type of bridging applies to you?
Regulated or unregulated isn’t a box you simply tick when applying for bridging finance: the property, what you’re using the money for, who will occupy the property, and your wider circumstances can all matter.
If you have a property transaction in mind but aren’t sure where it fits, speak to BDC Specialist Finance. Tell us what you’re trying to do, and we can look at the wider picture and explore the options that may be available.
Unregulated Bridging Loan FAQs
What is an unregulated bridging loan?
It is short-term property-secured finance that falls outside the regulatory framework applicable to regulated mortgage contracts. Whether a particular loan is regulated depends on the circumstances.
Can I use an unregulated bridging loan for an investment property?
Potentially. Unregulated bridging is commonly associated with property investment, but buying an investment property does not automatically make the finance unregulated.
Can bridging finance be used to buy at auction?
Yes, bridging finance may be considered when an auction buyer needs to complete within a short timeframe. Whether that loan is regulated or unregulated will depend on the circumstances.
Are unregulated bridging loans only for businesses?
No. Individuals and property investors can also use unregulated bridging finance where the transaction falls outside the regulated mortgage framework.
How are unregulated bridging loan rates worked out?
There isn’t one standard rate. Pricing can depend on factors such as the property, amount borrowed, loan-to-value, loan term, circumstances of the borrower and how the loan is going to be repaid.
Every situation is different. If you’d like to talk yours through, complete the form below and a member of the BDC team will get in touch.
