Regulated Bridging Loans

A regulated bridging loan can be a great solution when you need to purchase a property urgently before you have sold your current home.

Our guide will cover everything you need to know about regulated bridging and what to look for.

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    • Regulated Bridging Loans For Multiple Purposes
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    What is a regulated bridging loan?

    A regulated bridging loan is a loan that is secured against the borrower’s own home, the property that they and their family occupy, or will occupy.

    This type of bridging is regulated by the Financial Conduct Authority (FCA), meaning lenders and brokers must follow the same guidelines and practices as they would when arranging a mortgage on your home.

    Most bridging finance is unregulated, but because this type of bridging is secured against your home, the borrower will have the same level of protection and rights of redress that they would have with a residential mortgage.

    Regulated Bridging Loan Guide

    Author: Darren Ferguson – Mortgage Specialist & Owner

    First Published: 17th November 2023

    Read Time

    Read Time – Approximately 6 Minutes

    Our regulated bridging guide should be helpful, but it’s always best to speak with an adviser to discuss your own personal circumstances and to get the best advice. Call us on 01604 212879 should you have any questions.

    What is a bridging loan?

    A bridging loan, or bridging finance as its also referred to is a short term loan that is secured against a property, or multiple properties, much like a mortgage would be.

    Typically the term of a bridging loan could range from 1 month to 24 months, although for regulated bridging the term will be shorter.

    This guide is specifically aimed at regulated bridging loans, but you can find out more about the different types of bridging in our helpful guide to bridging finance.

    When would you use a regulated bridging loan?

    There are several circumstances for which a regulated bridging loan could be used, but the most common is for what lenders refer to as a ‘chain break’.

    A chain break scenario is where a borrower would like to purchase a new property to occupy but has not yet sold their current home and, therefore, can’t utilise the tied-up equity in their existing home to help fund the deposit for the new home.

    The borrower could wait until they have sold, but the risk is losing the property to another buyer if they don’t sell in time. A regulated bridging loan helps in this scenario by enabling the borrower to release some of the equity within their home to allow them to complete the purchase of the new home.

    Some other uses for regulated bridging:

    • Property refurbishment
    • Divorce settlement
    • Tax repayments
    • Lease extension
    • Auction purchase

    Regulated bridging can be used for most purposes where capital needs to be raised against an owner-occupied property. 

    What are the key points I need to know about a regulated bridging loan?

    There are several key points you need to understand before considering if regulated bridging finance is right for you:

    The term of the loan

    A regulated bridging loan will be capped at a maximum of 12 months. This means the loan will need to repaid in full within that 12 month period.

    The borrower chooses at outset how long they will require the loan for, up to 12 months, and the loan can be repaid at any time within the chosen term without any early repayment charges.

    calander showing month

    You’ll have to pay additional stamp duty (for chain breaks)

    In 2016, the Government introduced new stamp duty regulations and implemented a 3% surcharge on purchasing a second property.

    If the regulated bridge is being used for a chain-break scenario, you must pay this surcharge because you have not yet sold your current home.

    The amount you pay will be subject to the purchase price of the new property.

    Stamp duty rates are tiered, so for example, under current rates, if you purchase a property for £500,000, you would pay 3% on the amount up to £250,000 (£7500) and then 8% on the next £250,000 (£20,000) meaning a total of £27,500 in stamp duty.

    Once you have sold your current home, you can reclaim this additional amount from HMRC if it is sold within three years. 

    Total Rates For 2nd Property

    • up to £250,000 3% 3%
    • £250,001 to £925,000 8% 8%
    • £925,001 to £1.5 million 13% 13%
    • Over £1.5 million 15% 15%

    The interest is rolled up – no monthly payments

    With a regulated bridging loan, you do not make any monthly repayments as the interest is rolled up each month and added to the amount borrowed. 

    When you come to repay the loan, you will then clear the original amount borrowed, plus any fees, along with the accrued interest. 

    Rolled up interest is compounded, which means that the interest payable each month is calculated not just on the original amount borrowed, but on the amount borrowed plus any interest that has already accrued. This means the interest payment will increase month on month. 

    Maximum Loan To Value (LTV) of 75%

    The maximum loan-to-value will vary slightly from lender to lender, but generally, lenders will have a maximum gross LTV of 75% against each property to be secured against. This LTV is inclusive of any mortgage borrowing that may be already secured, for example:

    • Property value of £300,000 with £100,000 mortgage.
    • £300,000 * 75% would be £225,000.
    • This means there is scope to borrow an extra £175,000 after allowance for the current mortgage.

    What do we mean by gross LTV?

    Gross LTV refers to a maximum loan to value that must include any fees and interest that will be payable. This means the net amount the borrower will receive after deducting fees and interest will be less than 75%.

    Circle with 75 percent
    Exit door

    You’ll need a viable ‘Exit Strategy.’

    When you apply for any bridging loan, the first thing a lender will likely ask is how you intend to repay the loan, referred to as your ‘exit strategy’.

    Bridging is a short-term product, and you and the lender must be confident the exit is viable and can be exercised in the loan term.

    For regulated bridging loans, the two most common exit strategies are:

    • Sale of property – for chain breaks, this is typically the sale of the owner’s current home, which, when sold, will leave sufficient funds to clear the bridging loan in full after repaying any existing mortgage borrowing.
    • Refinance -the borrower will refinance the property onto a mortgage to raise funds to clear the briding loan. In this situation, the lender might want to see an agreement in principle from the lender that covers the full amount to be borrowed.

    For chain breaks, and where the exit strategy is the sale of the current home, the lender is likely to want to see that the property is currently or will be marketed for sale before the commencement of the loan. There are some exceptions to this, for example, where an owner might want to do some refurbishment work to the property before putting it on the market, so the lender may permit a little time to do so. Still, it should be remembered that a regulated bridging loan has a maximum term of 12 months, so the longer a property is off the market, the less time it has to sell and clear the loan.

    Call us on 01604 212879 to discuss your bridging requirements and get a no obligation quote

    How does a regulated bridging loan work?

    Regulated bridging works on the basis that the lender will take a 1st or 2nd charge against the property or properties to be used as security.

    A first charge is where no current borrowing is secured against the property, which would be the lender’s preference. A second charge is where a mortgage lender has the existing first charge, and the bridging lender will ‘sit behind’ the current 1st charge lender in order of priority.

    For 2nd charges, the bridging lender will require consent from the 1st charge lender to register their charge. Some mortgage lenders do not grant consent to 2nd charges, so you should check to see if yours will.

    What are the interest rates with a regulated bridging loan?

    Due to the short-term nature of a bridging loan, interest rates are quoted on a per-month basis rather than a per-annum basis.

    The rate you pay will depend on several factors, including:

    • The overall loan-to-value across all securities, inclusive of any existing borrowing
    • The loan size
    • Whether the loan is secured as a 1st charge, 2nd charge, or a combination of 1st and 2nd charge.
    • Your credit profile

    In the current climate, regulated bridging rates are starting at 0.55%pm, which equates to 6.6% per annum.

    Typically, a 1st charge will attract the lowest rates, with a combination of 1st and 2nd charges slightly higher and then a 2nd charge only marginally higher.

    Example of a regulated bridging loan chain break

    Our applicants own their own home, with a current valuation of £500,000 and a mortgage outstanding of £125,000.

    They wish to downsize and purchase a new home for a price of £300,000, have enough savings to cover the cost of stamp duty, legal and any other associated costs, and require an amount of £300,000 net loan proceeds to complete the purchase.

    Current Home

    picture of house

    Value of £500,000
    Mortgage of £125,000

    New Home

    house new home

    Purchase Price of £300,000
    Stamp Duty £11,500 with 3% surcharge

    Potential Loan Structure*

    • Total value of both securities (property) – £800,000
    • Net loan required – £300,000
    • Lender will take a 2nd charge against the current home, and a 1st charge against the property to be purchased.
    • Loan Term – 12 months.
    • Using an example rate of 0.70%pm.
    • Lender arrangement fee of 2% of loan – £6000
    • Interest Amount – £26,888.15 (if retained for full 12 months)
    • Estimated Legal Fee – £1800.00
    • Title Indemnity Fee – £129.58
    • TT Fee – £30.
    • Gross Loan – £334,847.33 (net loan + lender fee + interest + legal fee + indemnity fee and TT fee)
    • Gross LTV across both securities – 57.48% (inclusive of the mortgage)

    (*this is an example taken from one of our lender’s calculators for illustrative purposes only and does not constitute a quotation. Individual circumstances will dictate the terms and rate offered)

    Which lenders provide regulated bridging loans?

    Many lenders, perhaps hundreds, provide bridging loans, but most only offer unregulated bridging.

    The FCA must have authorised a lender to provide a regulated bridging loan.

    We have access to the full range of regulated bridging lenders and are confident we will source the best terms for your requirements.

    Many brokers arranging bridging finance will also charge a broker fee, which could be anything from hundreds to possibly thousands of pounds in additional costs.

    We never charge a fee for arranging regulated bridging finance.

    A range of our lenders is shown here.

    Call us on 01604 212879 for a free no-obligation regulated bridging quote

    Some of our regulated bridging lenders:

    • Alternative Bridging Corporation
    • Affirmative Finance
    • Shawbrook Bank
    • Glenhawk Bridging
    • Greenfield Mortgages
    • StreamBank
    • Octopus Real Estate
    • United Trust Bank
    • Precise Mortgages
    • MT Finance
    • West One
    • Together Money
    • Market Harborough Building Society
    • Lend Invest
    • & more

    Summary

    It’s vital to get the right advice when considering a regulated bridging loan and to speak to a broker that works with the whole market.

    We’re experts in bridging finance and will ensure the best deal and structure the loan the right way for you. We can also help with mortgage funding for the new purchase if required. Call us on 01604 212879 to find out how we can help. Our advice is free, and we’ll never charge a broker fee.

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    With most lenders, we can get a decision in principle within a few hours.

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