When a bridging loan is regulated
A bridging loan is a regulated mortgage contract when it is secured on land or property in the UK, and at least 40% of that property is used, or intended to be used, as a home by the borrower or a close family member. Close family generally includes a spouse or civil partner, a partner you live with, parents, siblings, children, grandparents and grandchildren. It applies when the borrower is an individual or the trustees of a trust: a loan to a limited company is not a regulated mortgage contract.
Common examples are a home mover who needs to buy before selling, someone buying a home that needs work before it can be mortgaged, and a parent buying a home for a son or daughter to live in. If the property is let to tenants or held as an investment, the loan is usually not regulated.
The way a property will be used determines how the loan is treated, so it is important to be clear about this from the first conversation.
The protections that apply
Regulated mortgage contracts are subject to the Financial Conduct Authority's mortgage rules. Lenders must assess whether the loan is affordable for you, and must be satisfied that the repayment plan is credible. You receive standardised information about the loan before you commit, and you have access to the Financial Ombudsman Service if something goes wrong.
These protections shape how the case is assessed. Expect the lender to look closely at your income and outgoings, how the interest will be met and the evidence for your sale or remortgage.
Your home or property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
How we handle a regulated enquiry
If the property is, or will be, lived in by you or a close family member, the loan is a regulated mortgage contract and comes with additional protections. We will tell you at the outset if that applies and how your case will be handled.
Instant Quotes shows only lenders on our panel with products designed for regulated bridging when you tell us the property is, or will be, your home or a close family member's home. The figures are indicative and are not offers or advice.
To help your case move forward, it is useful to have the following ready:
- Details of the property you are buying and the property you are selling, if any
- Any existing mortgage balances and lenders
- Proof of income and a summary of regular outgoings
- The evidence behind your repayment plan, such as an agent's valuation or a mortgage agreement in principle
Planning the repayment
Regulated bridging is designed to be short-term. Most cases are repaid from the sale of an existing home or by a residential mortgage once the new property qualifies. Lenders will want to see that the plan is realistic within the term, with room for a slower sale or remortgage process.
Because interest is often rolled up or retained, the amount owed at the end can be noticeably more than the amount borrowed. It is worth checking that the expected sale price or mortgage will cover the full balance, including fees, with a margin for a lower price than hoped.
If you plan to repay with a residential mortgage, it helps to speak to a mortgage adviser early about the amount you could borrow and when, particularly if the property needs work first. If you plan to sell, an agent's valuation and marketing advice give the lender confidence in the price and the timescale.
Regulated and unregulated bridging loans
Bridging loans fall into two groups. A regulated bridging loan is a regulated mortgage contract: credit to an individual or the trustees of a trust, secured by a mortgage on land, where at least 40% of that land is used, or intended to be used, as a dwelling by the borrower or a related person. The definition is in article 61 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, and the Financial Conduct Authority explains how it applies in PERG 4 of its Handbook. For a building with more than one storey, the 40% is measured by adding together the floor area of every storey.
An unregulated bridging loan is one that falls outside that definition. Common examples are a loan to a limited company, and a loan on buy-to-let, commercial or development property that neither you nor a close family member will live in. Lenders still assess the property, the exit and you, but the Financial Conduct Authority's mortgage rules for regulated mortgage contracts do not apply in the same way. Second charge bridging has its own treatment under the FCA's guidance, so we check how a second charge would be treated case by case.
You can check whether a firm is authorised, and what it is authorised to do, on the Financial Services Register. For the non-regulated side of the market, see bridging loans and limited company bridging, and our guide to regulated and unregulated bridging.
If the property is, or will be, lived in by you or a close family member, the loan is a regulated mortgage contract and comes with additional protections. We will tell you at the outset if that applies and how your case will be handled.
