Unregulated bridging loans are a popular financial tool for property investors, developers, and businesses, mainly because of their quick approval times.
Unlike regulated bridging loans, unregulated loans are much more flexible. This means they can be adjusted based on the needs of the borrower. Here, we’ll talk you through everything you need to know, including what they are and what you need to consider before applying for one.
What Is An Unregulated Bridging Loan?
An unregulated bridging loan is a short-term loan that is normally used to buy, renovate or refinance a property.
This type of loan is normally used for investment purposes like developments or buying properties at auction. Unregulated bridging loans are not regulated by the Financial Conduct Authority (FCA), which means they don’t have the same level of protection as regulated loans like mortgages.
What Are The Benefits Of Unregulated Bridging Loans?
Unregulated bridging loans have a number of benefits, including:
Flexibility: Unregulated bridging loans can can be used for properties that may not be eligible to be financed by traditional mortgages such as non residential properties. They also come with flexible terms, as these can be set entirely by the lender.
Quick: These loans can often be arranged within two weeks, making a good choice for businesses needing quick capital.
Higher Loan Amounts: Because the loans are unregulated, there are no set limits on how much a person can borrow. Lenders are able to assess the applications on a case by case basis, and may allow investors to borrow higher amounts based on their collateral.
Flexible Eligibility: Unregulated bridging lenders may not reject an application based on a borrower’s income or credit history. When it comes to bridging, they tend to be more concerned with the borrower’s exit strategy and the value of the collateral they are putting down.
What Do You Need To Apply For An Unregulated Bridging Loan?
To apply for an unregulated bridging loan, you’ll need to gather the following:
Exit Strategy: A clear plan for repaying the loan. This could be through selling the property, refinancing with a traditional mortgage, or selling other assets.
Security for the Loan: The loan has to be secured against a property. As part of the application process, you’ll need to provide a professional valuation confirming its real market value.
A Deposit: Most lenders will offer up to 70% of the property’s value as a loan. This is called the Loan-to-Value Ratio. The remaining 30% will need to be covered by the borrower, so having a cash deposit ready is important.
Are Unregulated Bridging Loans Safe?
While unregulated bridging loans are not necessarily unsafe, borrowers do need to approach them with a little more caution than regulated bridging loans.
Some things to consider include:
Interest Rates: As unregulated bridging loans have terms set by the lender, they tend to come with slightly higher interest rates. However, as shorter-term loans, this does mean that the interest only compounds over a shorter period of time – so this may work out more cost effective overall.
Quick Repayment Periods: Most bridging loans will need to be repaid within 15 months, which is why it’s important to have a solid exit strategy.
Potential For Loss Of Property: If the borrower defaults on the loan, the lender has the right to claim the property that the loan is secured against. While this is a last resort, it does show the importance of having a strong repayment plan in place.
How Much Can I Borrow With An Unregulated Bridging Loan?
The amount you can borrow with an unregulated bridging loan depends on the terms of the lender.
At Blue Square Capital, we offer bridging loans between £250,000 – £2,000,000 with an LTV of up to 70%.
In general though, unregulated bridging loans are designed to give borrowers significant capital for property purchases. Speak to your lender or a broker if you have any questions around your borrowing limits.
Regulated vs. Unregulated Bridging Loans: What’s The Difference?
The main difference between regulated and unregulated bridging loans is the type of property being secured and how the funds will be used.
Regulated bridging loans are secured against properties that are, or will be, lived in by the borrower or their family.
Unregulated bridging loans, on the other hand, are normally used for investment purposes.
Some key differences include:
Regulated Bridging Loans:
- Secured against the borrower’s home or a property they plan to live in.
- Subject to FCA regulations, offering more consumer protection.
- Longer processing times due to the amount of checks needed to take place.
- Lower borrowing limits, usually aligned with salary or income.
- Take into account credit history.
Unregulated Bridging Loans:
- Used for investment properties not intended for personal use.
- No FCA regulations, offering more flexibility but less protection.
- Faster approval and access to funds, usually within 2 weeks.
- Higher borrowing limits, based on the value of the collateral being put down.
- Borrowers with bad credit history may still be considered.
Are Unregulated Bridging Loans Expensive?
Unregulated bridging loans can be more expensive than regulated ones due to higher interest rates. However, their quick processing times make them a great option for investors needing to act fact.
In any case, it’s important to understand the full cost of the loan before proceeding – which your lender will be able to talk you through.
Unregulated Bridging Loans: Everything You Need To Know
Unregulated bridging loans can be a great financial tool for investors, property developers and businesses that need fast access to funds.
However, understanding the terms and solidifying your exit strategy are important in order to enter them safely.
To find out more about bridging loans offered by Blue Square Capital, get in touch with us today.
