Regulated vs non-regulated bridging

Which bridging loans are regulated?

Bridging loans can either be regulated by the FCA (Financial Conduct Authority) or unregulated.

Regulated bridging loans are loans secured by first charges or second charges against a property which is currently, or will be, occupied by the property owner.

Unregulated bridging loans refer to any bridging loan used for the purchase of an investment or commercial property. This includes any property used as a buy to let or any other property used for business purposes. Second charge loans also fall into this category, but some can still be regulated depending on the situation.

The key differences

A regulated bridging loan gives the homeowner protection under the FCA through the Mortgage Code of Business (MCOB) rules. Regulation aims to protect consumers against any inappropriate advice or miss-selling from lenders or brokers. Unregulated bridging loans, however, do not offer this type of protection to the property owner.

Why are some bridging loans unregulated?

The majority of loans and mortgages are regulated by the FCA. However, for the most part, this protection is exclusively for consumers and their own homes. Regulated mortgages must be assessed by the lender to ensure they are affordable through the buyer’s household income. Lenders must also ensure that consumers receive appropriate advice when looking at mortgaging as an exit route.

Mortgages to purchase any type of business property are typically not regulated by the FCA. This is because commercial lending is bespoke and should meet each individual’s circumstances.

This means when taking out a buy to let mortgage, buyers are often able to purchase houses based on the rental potential, rather than just the landlord’s income. This can often mean that they can purchase a house that is more than what they might be able to afford for themselves.