Opportunities in regulated bridging

There are two types of bridging loans currently available in the market; regulated and unregulated, with the main difference being that a regulated bridging loan is not intended for business purposes by landlords and developers.

Instead, a regulated bridging loan is secured against a property that is currently, or will be, occupied by the owner or an immediate family member. Unlike for commercial purposes where unregulated loans are standard, regulated bridging loans are authorised by the Financial Conduct Authority (FCA) and cannot be taken out for business use, making them an ideal short-term finance solution for homeowners looking to raise capital quickly.

Since the onset of the pandemic and the economic complexities that have arisen as a result, the regulated bridging loan market has actually seen a surge in popularity with a growing number of brokers and homeowners using bridging finance as a tool for realising their property goals.

According to figures from MT Finance’s Q1 2022 Bridging Trends market report, regulated bridging loans accounted for 43.9% of all transactions in the first three months of the year, up from 36% in Q4 2021.

This increase is significant and is a positive sign that a growing number of homeowners are starting to see regulated bridging loans as a viable and trustworthy financial product that could make the difference between successfully acquiring a property or watching one pass them by.

In fact, regulated loans for chain break purposes saw the greatest increase in demand over the first three months of the year, accounting for almost a quarter (23%) of all bridging loan transactions, up from 18% on the previous three months.

While avoiding a chain break is the most common use of a regulated bridging loan among homeowners, they can also be used in cases where a homeowner needs peace of mind to ensure a new property is purchased before selling their existing home. 

Similarly, a regulated bridging loan can be used in cases where there is an immediate need to raise cash, or to refurbish a property before exiting to longer term finance. In addition, they are also a useful tool for self-build projects as they provide the funds required to start the build in a short space of time, which can save money in the long run.

As with unregulated bridging products, regulated bridging loan lenders require security before agreeing to release the funds, which in the majority of cases is a first or second charge mortgage against a property owned by the borrower. Given the fact that the average term length is around 12 months, and the maximum term allowed by the FCA is 12 months, all lenders also require a clear and concise exit strategy from the loan.

Brokers with clients who could benefit from a regulated bridging loan can refer customers to a packager like Norton Broker Services, who will do all the work including the regulated advice on your behalf. Brokers will still own the client and can advise them on longer term finance later down the line. They will also receive a procuration fee from Norton, once the loan is complete.