Regulated and unregulated bridging loans

A regulated bridging loan is a short-term loan secured on land where at least 40% is, or will be, used as a home by the borrower or a close family member. It counts as a regulated mortgage contract under the Regulated Activities Order 2001, so FCA mortgage rules apply to the lender and to any intermediary.

Those rules sit in the FCA's Mortgages and Home Finance: Conduct of Business sourcebook (MCOB). They cover how the loan is advertised, how affordability is checked, what the borrower is told before committing and how arrears are handled. Most residential chain-break loans fall into this category.

An unregulated bridging loan is secured on property that is not the borrower's home or a close relative's home, such as a buy-to-let, a commercial unit or land. The FCA mortgage rules do not apply to the loan itself, so lenders set their own criteria and focus on the property value and the exit route.

Unregulated loans are often taken by companies, landlords and developers. Because the borrower is treated as acting for business purposes, there are fewer formal checks, which can shorten the timetable. The commercial bridging loans page covers loans on shops, offices and mixed-use buildings in more detail.

The main differences are protection, process and who can lend. Regulated loans need lenders with FCA mortgage permissions, affordability checks and standard disclosure documents, and borrowers can take complaints to the Financial Ombudsman Service. Unregulated loans have fewer formal steps, a wider range of lenders and terms agreed case by case between borrower and lender.

Pricing is set by each lender and depends on the loan-to-value, the security and the exit rather than on the category alone. Regulated loans can take longer because of the extra checks. A borrower who buys a home to live in cannot choose an unregulated loan to avoid those checks.

Some cases fall between the two. Letting to a close family member can make a loan regulated, while letting a former home that was inherited or could not be sold may fall under the separate consumer buy-to-let rules. Lenders look at who lives in the property and why before deciding which rules apply.

The definitions come from article 61 of the Regulated Activities Order 2001 and the Mortgage Credit Directive Order 2015. Where the category is not clear, the lender asks for a declaration of the intended use. A bridging loan broker with the right permissions can explain which category a particular case is likely to fall into.

They can be. Since March 2016, second charge loans secured on a borrower's home have been regulated mortgage contracts, in the same way as first charge loans. A second charge bridging loan on an investment property is usually unregulated. The test is again the use of the property, not whether the charge ranks first or second.

A second charge sits behind the existing mortgage, so the first-charge lender may need to give consent. How these loans work, and when they are used instead of refinancing, is covered on the page about second charge bridging loans.