Difference Between Regulated and Unregulated Bridging Loans

By admin In Blog On October 13, 2021

Are you looking to borrow credit and not sure whether if your loan scheme is secure or not? If you are, then keep reading to learn how your loan scheme offers protection to your credit.

What is the difference between Regulated and Unregulated Loans?

If you are looking to borrow a credit as an individual or as a trustee, in connection with a dwelling (a place of residence), or in connection with a dwelling by an individual who is a beneficiary of the trust or a related person. And you want to borrow a credit that is secure through the protection of the Financial Conduct Authority. Then, a regulated loan scheme will be the one where you will be entitled to secure your repayment through a mortgage on land in EEA and you can intend to use a minimum of 40%. Whereas, if you have borrowed a loan that does not fall under the protection of the Financial Conduct Authority then you are cover by an unregulated loan.

How do I know which one I need?

If you are looking to secure a loan against your property under Finance Conduct Authority which is occupied by you or your immediate family or will be occupied in near future, then a Regulated Loan is suitable for you. In contrast, if you are taking a loan for business purposes that is not going to be secured by Finance Conduct Authority, then an Unregulated Loan is ideal for you.

What are Regulated Bridging Loans?

If you are looking to borrow credit and intend to secure it against the property you currently occupy or intend to, known as Regulate Bridging Loans. It is protected by Financial Conduct Authority, therefore as a consumer, your credit is protected and ensured for fair competition. Regulated Bridging Loan can be two ways:

  • A first charge short-term loan is to help you to achieve your short-term financial goals. In the first legal charge, it is secured against the value of your property. Generally, in this type of charge, lenders have a limit on how much they can lend as part of a first charge.
  • A second charge mortgage where you use any equity you have in your home as security against another loan. Equity is the percentage of your property owned outright by you, which is the value of your home minus any mortgage owed on it. The second charge loan works similarly to your mortgage.

Uses of Regulated Bridging Loans

A regulated Bridging Loan is used when there is a property chain break. Generally, the buyer uses a regulated bridging loan to ensure that they can purchase the new property before selling their own. It is not even limited to property chain break. It can also use for a minority of regulated bridge cases that are driven by the personal circumstances of the borrower with an immediate need to raise cash or to refurbish a property before exiting to longer-term finance. To ensure that you can purchase the new property before selling your own.

What are Unregulated Bridging Loans?

Unregulated Bridging Loans is where a property is used as security for business and investment purposes and property will never be used by the borrower or any member of the immediate family.

Uses of Unregulated Bridging Loans

Unregulated Bridging Loans are used when purchasing land to obtain planning permission before a development. Funding works to a property. It uses to secure residential, commercial, and semi-commercial property immediately, and purchasing properties at auction. Unregulated Bridging Loan is also used to purchase and refurbish a property for resale and securing a property to make improvements ahead of getting a Buy-to-Let mortgage.

Are there any risks involved?

Nothing comes without risk. Similarly, there are unregulated bridging loans are also associated with risks. One of the common drawbacks is that a bridging loan is secured against your property therefore if you are unable to meet the repayment criteria, you could risk losing ownership of your current property. Another risk is that you must sign terms and conditions and you must abide by them.

Conclusion

It is appealing to get bridging loans as they are short-term with high-rate interest loans and fees apply. Both parties (borrower and lender) should engage with established lenders who have a strong track record when it comes to deploying bridging loans. Therefore, before you decide, you must check if the bridging loan is feasible for you. Lenders must educate their borrowers regarding different types of bridging loans available and how they can work.

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