Unregulated Bridging Loans Vs Regulated Bridging Loans

Unregulated Bridging Loans vs Regulated Bridging Loans: What You Need to Know

A short guide covering the key differences between regulated and unregulated bridging loans, for more informed decision-making. 

The use of bridging loans has been steadily growing, with loan books reaching a record £8.1bn¹ high in 2024. From purchasing investment assets to preventing a property chain break, they offer developers, investors and homeowners a fast, flexible solution across the full spectrum of property transactions. 

Depending on the transaction, the loan will either be a regulated bridging loan or an unregulated bridging loan. In this article, we cover the essentials of bridging finance before examining the key differences between regulated and unregulated bridging loans, when to use each type and the pros and cons of both.

If you want to see what you can borrow on bridging finance, use Brickflow’s bridging loan calculator and instantly see if your deal stacks against live borrowing options. 

Head to our bridging finance page for a more in-depth look at bridging loans and how they work.

What are bridging loans?

Bridging loans are short-term, secured loans that can be arranged quickly and are primarily approved based on the borrower’s exit strategy. As a temporary funding solution, they commonly bridge the gap between buying and selling/refinancing a property.

Typical exit strategies include:

• Selling the property the bridging loan is secured against after adding value through development works
• Selling another property or asset
• Refinancing with a long-term solution, such as a commercial mortgage, buy-to-let or homeowner mortgage 
• Refinancing onto development finance

Interest is charged daily, so you only pay for what you use, and it’s typically rolled up and paid at the end of the loan, or deducted upfront from the gross loan. Since it's rolled-up, the interest is compounded (pay interest on interest), so you pay more than if you pay monthly. Serviced bridging loans do exist, but are much less common with lenders.

Find out more about interest charges and bridging loan costs.

Regulated bridging loans

Definition and features

A regulated bridging loan is intended for borrowers who are securing the loan against their current home, or against a property they intend to live in. As such, they are subject to regulatory standards set by the Financial Conduct Authority (FCA), which ensures regulated bridging lenders comply with specific laws designed to protect borrowers. 

Key features and characteristics: 

• Short-term (typically not longer than 12 months)
• For residential properties only
• Can only be arranged with FCA-authorised lenders

Legal and regulatory aspects

All regulated bridging loans are overseen by the FCA in the UK.

Compliance and regulatory considerations: Because regulated bridging loans are secured against the borrower's home or future home, they offer the same protection as a homeowner mortgage. 

This means anyone taking out a regulated bridging loan will be protected by the FCA if they are sold an unsuitable product or receive incorrect advice from lenders or brokers and may, in some cases, be eligible for compensation.

Use cases: what is an example of regulated lending?

Some examples include:

• Chain break: In parts of the UK, buying your next home often depends on selling your current home, so buyers and sellers end up in a chain of interdependent sales and purchases. If any buyer or seller pulls out, it can affect the entire chain. A regulated bridging loan enables you to buy before selling, so you don’t miss out on your next home due to a collapsed chain.

• Moving quickly: Sometimes you need to move quickly, from relocation to an unmissable opportunity. Bridging loans can complete faster than a residential mortgage.

• Refurbishment work: Whether you want to upgrade your existing home, or carry out renovations before moving into a new home, regulated bridging finance can fund the works before refinancing.

• Auction purchase: If you find your next home at auction, a homeowner mortgage can’t meet the short 28-day purchase timeframe required by the auction house, but auction finance can.

• Self-build: Building your own home enables you to create exactly what you want. If you don’t fancy sleeping in an on-site caravan throughout construction, using a bridging loan can enable you to build before selling your home.

Advantages

• Suitable for homeowners: In the same way that bridging finance offers more opportunities for property investment, regulated bridging finance expands opportunities for homeowners.
  
  
• Greater consumer protection: Working with a regulated bridging lender means the borrower benefits from FCA protection.
  
  

• Lower rates: Regulated bridging loans typically involve less risk for lenders, so can have lower rates than unregulated bridging loans.

Disadvantages

• More layers of bureaucracy: To meet FCA regulations, lenders have additional checks and balances to carry out on both the property and the borrower. 

• Longer approval process: More paperwork, more checks and more lender due diligence all mean more time to secure a loan compared with unregulated bridging loans.

• Stricter criteria: From property type to maximum loan size, regulated bridging loans tend to be less flexible than UK unregulated loans.

Unregulated bridging loans

Definition and features

Unregulated bridging loans can be secured against any commercial or residential investment property. Unlike regulated bridging loans, the property cannot be the borrower's (or their family’s) primary residence. 

Key features and characteristics: 

• Fast to arrange
• Longer term, up to 24 months
• More flexible in terms of the types of properties they can be secured against and the borrower’s creditworthiness
• Deemed higher risk to unregulated bridging lenders, so typically have higher rates than regulated borrowing

Legal and regulatory aspects

Unregulated bridging lenders are not bound by the same regulations that apply to regulated bridging loans, so can therefore be more flexible.

Compliance and regulatory considerations: Things such as affordability checks and consumer protection standards don’t apply. This means the borrower has more responsibility to ensure they understand the risks and can afford the loan.

Use cases: what is an example of unregulated lending?

Unregulated bridging loans are one of the most flexible types of specialist finance on the market. They can facilitate numerous types of property purchases as well as support business growth.

Here are some examples of scenarios where unregulated bridging loans are commonly used:

• Commercial properties: Can finance both owner-occupied and investment commercial properties before refinancing with a commercial mortgage.

• Raising capital against a property: Whether a buy-to-let property or commercial space, unregulated bridging finance can enable you to release capital to invest elsewhere.

• Buying at auction: Many investors hunt for opportunities at auction.
  
  
• Property flipping: Refurbishment bridging enables you to buy an unmortgageable property before renovating and selling. 
  
  
• Buying land: With or without planning permission, before either building out the site or selling on after securing planning.

Advantages

• Flexibility: Unregulated bridging can be secured against numerous property types, and there is less borrower eligibility criteria to meet.

• Fast: If lenders work with an automated valuation model (AVM) and accept title insurance, searches are not required, so completion can be as quick as a few days.

• Vast lending limits: On Brickflow, our unregulated bridging lenders can offer up to £100 million.

Disadvantages

• Higher risk for borrowers: Unregulated bridging loans don’t offer borrowers any consumer protection, so it is essential to understand the finance commitment you’re making and have a viable exit strategy.
  
  
• Higher rates: Likewise for lenders, unregulated bridging loans are perceived as higher risk, and therefore typically come with higher rates.

Comparison table: what is the difference between regulated and unregulated bridging loans?

Here’s a quick look at the key differences:

Practical advice on choosing between unregulated and regulated bridging loans

Choosing between a regulated and unregulated bridging loan depends on your specific situation — rather than choosing your loan type, it will be determined by what you are using it for.

Some things to consider:

• Purpose of the loan: Regulated bridging loans are suitable for residential property transactions involving your primary residence. UK unregulated loans offer more flexibility for various property types and projects but cannot be used for your main residence.
  
  
• Financial situation: Regulated loans require affordability checks and more due diligence on your creditworthiness. Unregulated loans have fewer eligibility requirements. 
  
  
• Risk: Regulated loans offer greater security with consumer protection, whilst unregulated loans assume more responsibility on the borrower to understand the risks involved.
  
  
• Speed: Unregulated loans can, in some cases, be approved in a matter of days, whilst regulated bridging loans can have similar timeframes as a traditional mortgage.

• Rates: Unregulated loans will typically be more expensive than regulated loans. Shopping the breadth of the market is key. Brickflow’s live bridging loan calculator enables you to search & compare loans from over 50 bridging loan lenders, instantly.

• Loan term: Unregulated bridging loans can have more flexible loan terms, but it is always crucial to ensure your exit strategy aligns with the agreed term. Regulated bridging loans are limited to 12 month term maximum.

Working with a specialist bridging loan broker can help you to secure the best loan for your circumstances. Brickflow’s intermediary partners are amongst the best in the UK and can secure the right loan for you in a single digital journey on the Brickflow platform.

For the fastest, most accurate way to find out what you can borrow and what it will cost, run your numbers through our live bridging loan calculator.

How Brickflow can help

Unless you shop around, it’s impossible to find the best deal for your needs. Likewise, it’s impossible to know if your next property investment is viable without knowing the actual cost of your finance.

Brickflow enables you to search the breadth of the bridging market, instantly, including banks, challenger banks, non-banks and specialist lenders. 

With your intermediary, you can then go on to secure the best loan for your property investment in a single online journey.

It’s this simple:

1. ENTER your project criteria and model your deals
2. COMPARE loans from 50+ bridging lenders on Brickflow
3. APPLY for a loan with your intermediary or a Brickflow partner

Modelling your deal against live market loans could save you tens or hundreds of thousands of pounds, so before every project, search on Brickflow — it takes seconds.

Conclusion: making the right choice for your property finance needs

Regulated and unregulated bridging loans can facilitate a vast range of property transactions. Understanding the benefits and limitations of each type of bridging loan can help inform your decision-making process.

Checking your finances is key to any successful property investment, whether it’s your next home or your next development project. For the quickest, most comprehensive financial due diligence, run your numbers through Brickflow’s live bridging comparison tool.