• Need to complete a property transaction quickly?

• Looking for short term finance?

An unregulated bridging loan is increasingly used to fill the funding gap.

• 38 per cent - rise in annual short-term lending, 2021.

Including, a shift in the ratio of regulated to unregulated bridging loan lending.

In 2020...

• 49 per cent - regulated loans.

- compared to -

• 51 per cent - unregulated loans.

In 2021...

40.8 per cent - regulated loans.

59.2 per cent - unregulated loans.

(Source: Bridging Trends (Data) - MT Finance, 2022)

Short term financing

An unregulated bridging loan can often be used when -

A property is put up as security to obtain short term finance for:

• Acquiring another property.

• Business or investment purposes.

Short term finance may also be needed if:

• A property investor wants to add value by renovating / refurbishing a property.

Other common reasons for taking out an unregulated bridging loan -

• Funding an auction purchase.

• Repaying development finance.

It's important to know...

Non-owner occupancy

Properties used as security for acquiring unregulated bridging loans are:

• Not be lived-in or occupied in any way by the borrower, nor their immediate family members.

Property financing method

Unregulated bridging finance is a property finance method often used by:

• Property investors, landlords or other potential business borrowers growing a property portfolio, for example.

Company loan

Unregulated finance borrowed by a business under a company name - not an individual borrower - is still defined as an unregulated bridging loan,

The key difference is:

1. Unregulated bridging loans are secured against -

• Another separate property.

A bridging loan becomes regulated when it is secured against the borrower's home, which they permanently occupy.

2. Your unregulated bridging loan will not be covered by the Financial Conduct Authority (FCA).

The FCA is an independent body, designed to protect consumers from loan lenders or brokers how do not act with due diligence, give misleading or incorrect advice, and potentially other unscrupulous behaviour.

Some exceptions to whether a bridging loan is unregulated or regulated.

A Loan can be classified as unregulated if:

• You occupy part of the property - under 40 per cent of the total internal space.

• Second charge loans* are taken out for business purposes - even if secured against your own home.

*Second charge loans are... secured against an existing residential property where a first mortgage is already in place, with enough equity to cover the loan repayment. A second charge loan is also completely separate from a first mortgage loan.

Your property is regulated if:

• You either occupy the property currently or have previously occupied, or may do so in the future.

Advantages for property developers and investors

Bridging loan lenders, generally speaking, will offer unregulated bridging loans amongst other interest options to property investors they have approved.

Any decision over a lender's short term finance facilities, and choosing between regulated and unregulated loans highlights the particular benefits an unregulated bridging loan can offer property developers and investors.

The advantages offered by an unregulated loan are clear:

Quick and easy capital

The loan-raising process tends to be much faster and more straightforward.

The fast-track approach to unregulated bridging loans is a key attraction for investors who often need to act quickly to secure development loans on their property transactions.

The unregulated lender is more likely to make their decision within one day (subject to standard underwriting and valuations). This allows the required funds to be released to the borrower within days/weeks of loan approval.

One lump sum interest payment

Interest can be either retained/rolled-up or serviced depending on individual circumstances. Many investors/developers prefer bridging loans as it allows them to NOT service the loan as the interest has already been factored into the lending. This also gives the lender peace of mind that the debt has been serviced for the term.

Other types of exit strategy used are:

Refinancing to a buy-to-let mortgage

Often used when a mortgage cannot be secured in time. However, once the mortgage is finalised, the initial loan can be repaid.

Repayment from another source

A delayed payment from another source is used to repay the loan.

Sale of property

If purchased to flip, once the works are all complete many investors will sell the asset to pay back the bridge and release their profit.

Other benefits:

High street banks and traditional mortgage lenders usually operate a strict assessment policy on all loan candidates. As an essential part of obtaining final approval, a series of thorough credit checks are carried out to determine whether there is a history of adverse credit, for example.

The primary concern for an unregulated lender, however, is not just your credit history or financial status. Many lenders in this pace operate on a manual underwriting and look at the whole picture. Some lenders will prefer vanilla and good credit rated clients and some are happy to consider people that may have had issues with their credit in the past.

Unregulated lenders are chiefly interested in whether the investment will yield a potential profit. This means the lender will consider all applications on a case-by-case basis instead of relying primarily on the results of a credit check.

It provides a real opportunity for an investor who may have a poor credit rating and is unable to obtain standard loan financing elsewhere.

Meet a property auction deadline

Access to quickly obtaining funds to meet a property auction deadline is often a key attraction of taking out an unregulated bridging loan.

Investors often seek out a property auction for spotting a development opportunity.

Fast access to funds

However, any property purchase requires the exchange takes place at an auction and completion made within 28 days.

Investors have the assurance of fast access to funding from an unregulated loan. It means they can take quick advantage of securing the purchase of a property when needed.

Approval for a range of 'high-risk' projects

Developers and investors usually turn to bridging loans, in general, to help fund a number of property projects. These often include refurbishments, construction and even land purchasing.

However, traditional banks and high street lenders will often not approve a standard loan for property projects they tend to consider as 'high-risk'.

All lenders will have their requirement regarding the various types of documents you need to supply.

Some of the documents required by us:

• Proof of ID and current address.

• Proof of income (if applicable)

• Full property details

• Your planning permission for the property plus details of works to be carried out.

• Clear, documented proof of your selected exit strategy.

Different lenders may have their own time-scale in place for unregulated bridging finance.

If the lender's necessary criteria is met...

You may have your unregulated bridging loan completed:

• Within 5-10 days of them receiving your application.

However, a more reasonable and realistic waiting period is likely to be 2/3 weeks.