Short Term Loans
Differences Between Regulated And Unregulated Bridging Loan
Bridging finance is famous among borrowers due to its flexibility and quick access to funds. Usually, it is used by property developers, property investors and homeowners. Bridging loans Uk can be regulated or unregulated. In both kinds of loans, borrowers must have a property or valuable asset to use as a security against the loan.
It is also essential for borrowers to have a strong exit strategy. As a borrower, you have a risk of repossession if you can not repay the loan on time. One thing that you should consider about this type of debt is that it is a type of short term loan UK and comes with a high-interest rate.
In this article, we will describe the difference between regulated and unregulated bridging finance so that you can choose the right option for yourself.
What Is A Regulated Bridging Loan?
If you take out a bridging debt against a residential property that is currently or will be occupied by the owner or a family member, this type of loan is referred to as a regulated bridging loan. If you are thinking of renting out a property, you should go for a buy to let loan or a mortgage loan.
You can take out a first charge or second charge bridging loan, and the regulations are the same as those for standard mortgages. Typical regulated finance offers a maximum of 12 months terms, rolled up interest options and exit strategy based on refinancing or sale of the property.
These loans are regulated by the Financial Conduct Authority (FCA). It protects borrowers from misleading behaviour from lenders or brokers and promotes fair competition.
Uses Of Regulated Bridging Loan
You can use regulated bridging finance for the following reasons:
- Renovating a property in which you are living or thinking to move.
- To break a property chain.
- Purchase a property at auction.
Always keep in mind that if you fail to repay the loan on time, there are chances of repossession of your home, so try to keep up with loan repayment on time.
What Is Unregulated Bridging Loan?
Unregulated bridging loans are a popular short term funding solution for those who are looking for funds to complete property transactions quickly. They are more flexible and can be tailored according to the borrower's needs.
However, regulated loans have many constraints such as long processes and hard credit checks, multiple levels of bureaucracy and delays in funding.
In contrast, unregulated bridging loans reduce these constraints and over different aspects such as investment for expanding property portfolio, purchasing a property before the sale of existing one and renovation of a property to increase its value before the sale.
The FCA has no protection on buy to let properties, investment properties, and commercial real estate properties. It means all the commercial bridging debts are unregulated.
Uses of Unregulated Bridging Loans
The uses of unregulated loans are similar to those of regulated ones. Still, the difference is that you can not use the property you are going to buy for a residential purpose. You can use it if you are looking to:
- Invest in a buy-to-let property
- Expand your property portfolio
- Start a new business venture
- Purchase a property at auction
- Get funds against a commercial property to buy an asset for your business
The FCA has no regulation, so you must be careful while choosing a lender to get unregulated bridging finance. Always choose a well-reputed lender who has been working in the market for years.
Wrapping Up
Now you know that which type of loan you have to take depends on the type of property you want to purchase. No matter which type of bridging loan you want to take, you should always do research and find a lender that offers affordable rates.
by Short Term Loans on 2022-02-24 06:28:51