Regulated vs unregulated bridging loans: Pros and Cons

regulated vs unregulated bridging loans

When it comes to purchasing property quickly, a bridging loan can be your handy sidekick. But which is the better option for you, regulated or unregulated?

A regulated bridging loan is a short-term loan secured against the borrower’s home or property they intend to purchase. An unregulated bridging loan, on the other hand, is a short-term loan not secured against any property. They each have their own unique benefits and drawbacks.

In this blog, we discuss the difference between regulated and unregulated bridging loans and help you decide which is best for your property-buying venture. Keep reading to find out more, or contact us today for free advice from a bridging loan expert.

How are bridging loans regulated?

Regulated bridging loans are maintained by the Financial Conduct Authority (FCA) to protect consumers and ensure that lenders operate in line with the correct rules and regulations.

The FCA doesn’t oversee unregulated bridging loans, meaning they can come with extra risks and higher interest rates. However, this isn’t always a bad thing. An unregulated bridge loan can also come with some perks for borrowers, particularly if they are looking for lenders to be more flexible with the loan terms.

Why are some bridging loans unregulated?

Not all bridging loans are regulated by the FCA. While this does sound a little unsafe or risky, it simply means that as the borrower, you’ll have more flexibility when choosing and using a bridging loan.

You may wish to choose an unregulated bridging loan if you require more specialised funding for commercial real estate or non-residential property purchases. Their flexibility and slightly more lenient eligibility criteria make them ideal short-term loans for property investors and small business owners.

What is the difference between a regulated and an unregulated bridging loan?

While both regulated loans and unregulated loans offer a similar solution for short-term finance to ‘bridge the gap’ between property purchases, they do have some key differences.

Regulated bridging loan

A regulated bridging loan is a specific type of short-term financing to facilitate the purchase of residential property. They follow strict regulatory guidelines, ensuring borrowers are legally protected and regulated lenders are transparent with their offerings. While this can provide borrowers with more peace of mind, it can mean that a regulated loan sometimes takes longer to secure.

Unregulated bridging loan

An unregulated bridging loan is a more flexible type of short-term financing that assists borrowers in purchasing commercial property or funding non-residential projects. They can also be used for business purposes in some instances. An unregulated loan is usually easier to obtain as it doesn’t have as many regulatory checks, although this tends to come with higher risks and interest rates.

Understanding regulated bridging loans

Regulated bridging finance is a helpful financial tool for individuals looking for faster access to funds to help them purchase, renovate or refinance residential properties. They are typically used to help individuals purchase a new property before selling their current home to avoid breaking the property chain.

Let’s take a look at some of the pros and cons of regulated loans.

Pros of regulated bridging loans

If you opt for a regulated bridging loan, then you will be protected by the FCA. This means that the lender is required to follow certain rules and regulations to ensure your protection. Regulated bridging loans offer several benefits for people looking to purchase residential property quickly. Some of these benefits include:

  • Better consumer protection
  • Various uses
  • Structured agreement
  • Lower monthly interest payments

Cons of regulated bridging loans

As with all types of finance, regulated bridging loans also have some drawbacks. These can include:

  • Longer application process
  • Less flexibility
  • Lower loan amounts
  • Stricter eligibility criteria

Understanding unregulated bridging loans

Unregulated bridging finance offers a versatile finance solution for property developers and investors to help them fund commercial property purchases and non-residential projects. Common uses for unregulated bridge finance can include purchasing a commercial property quickly, such as a hotel or office block, or funding a commercial development project.

Let’s take a look at some of the pros and cons of these unregulated loans.

Pros of unregulated bridging loans

If you decide to use unregulated bridging finance, then you won’t be protected by the FCA, but you will have more flexibility with how you choose to use the loan. Unregulated bridging loans offer several benefits for those looking to make quick commercial property investments. Some of these benefits include:

  • Faster access
  • More versatility
  • Less stringent lending criteria
  • Higher loan amount

Cons of unregulated bridging loans

There are some drawbacks to unregulated bridging loans, which can include:

  • Lower consumer protection
  • Higher risk
  • Higher interest rates

Which type of bridging loan is best for me?

In the world of bridging finance, choosing between regulated and unregulated loans comes down to your property transaction and financial needs. Regulated bridging loans offer better protection and more structure, making them a more reliable choice for residential purchases. Unregulated loans don’t provide the same level of security, but they are more flexible, making them more suitable for complex commercial purchases.

If you’re considering short-term finance options for purchasing a property, it is important to weigh up the pros and cons of regulated vs unregulated bridging loans to make the best choice for your situation.

Here are some key questions to consider when choosing what type of bridge loan is most suitable for you:

  • What are you looking to use the loan for?
  • How much do you plan to borrow?
  • Are you buying as an individual or part of a small business?
  • Are the bridging loan interest rates acceptable?
  • What is your exit strategy for paying back the loan?

With the support of a bridging loan specialist, deciding which finance option you should choose can be made much easier, and the process of securing finance can be much quicker.

Find a suitable bridging loan for you with Bridging Options

Whether you’re looking to buy an investment property, refinance your current home or buy your dream home before your existing one has sold, there is a faster finance solution for you.

At Bridging Options, we can connect you to specialist bridging loan experts with access to a broad range of bridging loan lenders.

We’ll help you secure an FCA-regulated bridging loan from some of the most trustworthy lenders. We can also advise you if you are looking for a specialist loan for investment opportunities or complex property developments. Our contacts know the best regulated and unregulated lenders on the market, so you can have peace of mind that whatever your bridging needs, you are in safe hands.

For fast and reliable bridging loans, contact Bridging Options today, and we will connect you to an expert as soon as possible.

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At Bridging Options we specialise in providing short-term loans to help purchase commercial or residential developments and property. If you would like advice or to speak to a finance expert please contact us.

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