ARE BRIDGING LOANS REGULATED?
One of the most common questions we are asked by new brokers looking to refer bridging cases is “Are bridging loan regulated?” There is a common misconception that bridging loans are not regulated. This is not true. Not all bridging loans are FCA regulated, but generally if the loan is being secured against a property the borrower has previously lived in, currently lives in or intends to live in, then the loan will be deemed FCA regulated.
WHAT CONSTITUTES A REGULATED BRIDGING LOAN?
The borrower (or a family member) needs to occupy at least 40% of the property for it to be deemed a regulated loan. In simple terms, if the bridging loan is secured against someone’s primary residence, then the loan is likely to be FCA regulated.
This means that both 1st and 2nd charge bridging loans can be regulated when secured on the borrower’s main residence, although there are some exemptions for 2nd charge loans (primarily if the use of funds is for business purposes and not personal use).
With recent changes to Consumer Buy to Let rules, if a client inherits a property that is their only other property, then this was be deemed a CBTL loan, which would be deemed regulated under FCA definitions.
SO WHAT IS NON-REGULATED BRIDGING?
Lending to a Ltd Company (or other corporate entity) or a property that is not owner-occupied by the borrower or family member, such as Buy to Let / investment property, commercial property etc. Where the purpose of funds is clearly for business use. Be careful though, as whist most lenders would deem a loan against BTL or commercial property non-regulated, if the purpose of funds is personal use (such as to raise a deposit for their main home purchase, debt consolidation or home improvements to the main residence), then the loan could still fall under FCA regulations.
HOW CAN BRIGHTSTAR HELP?
We recognise that not all advisors will be comfortable advising on regulated bridging contracts. We are also seeing an increasing number of our network partners actually no longer allowing their AR brokers to offer advice in what they deem ‘higher risk’ areas (i.e. bridging finance). As a result, Brightstar have obtained full FCA permissions and are directly authorised to deal with your client’s directly on a fully advised basis. This gives you the choice to simply refer your client across to Brightstar for advice or stay involved and give the advice yourself. Either way, we are happy to assist you and your clients with our team of expert short-term loan specialists.