Are bridging loans regulated?

Bridging loans serve as short-term financing solutions, helping borrowers ‘bridge’ gaps between property transactions or funding needs.

These loans typically last from 3 to 36 months and are secured against property or land. Not all bridging loans follow the same rules – some fall under strict Financial Conduct Authority (FCA) regulation while others don’t. Understanding this distinction matters because it affects your consumer protections, application process, and loan terms.

Whether you’re a homeowner caught in a property chain or an investor eyeing a commercial opportunity, knowing the regulatory status of your bridging loan helps you make better borrowing choices.

What Makes a Bridging Loan Regulated?

FCA Oversight Explained

A bridging loan becomes regulated when it’s secured against a property that is (or will be) your main residence.

More specifically, the FCA steps in when you or a close family member occupies or plans to occupy at least 40% of the property. This rule stems from the Mortgage Credit Directive, which brought short-term property finance under similar protections as standard mortgages.

Regulated bridging loans must follow strict guidelines including:

• Clear disclosure of all fees and charges
• Thorough affordability assessments
• Maximum terms usually capped at 12 months
• Cooling-off periods giving you time to reconsider

If you’re using a bridging loan to buy a new home before selling your current one, or renovating your main residence, you’re likely dealing with a regulated product. The FCA’s involvement means enhanced consumer protection throughout the process.

Unregulated Bridging Loans Explained

When bridging finance is used purely for business or investment reasons, it usually falls outside FCA regulation.

Common examples include:

Business and Investment Purposes

Loans secured against properties you won’t live in are generally unregulated. This includes:

• Buy-to-let property purchases
• Commercial property acquisitions
• Land purchases for development
• Funding for business premises

Unregulated loans offer more flexibility in terms of loan size, property types, and lending criteria. They can often be arranged faster since they don’t require the same level of affordability assessments. This makes them well-suited for experienced property investors and developers who need quick access to capital.

While these loans lack the same statutory protections as regulated products, many lenders still operate to high standards. The key difference lies in your legal recourse if things go wrong.

Consumer Protections in Both Categories

Even with unregulated bridging loans, you’re not left entirely without protection. Many lenders belong to trade bodies like the Association of Short Term Lenders (ASTL), which sets industry standards for transparent and fair lending.

For regulated loans, your protections include:

• Right to clear information about rates and fees
• Complaints handling procedures
• Access to the Financial Ombudsman Service
• Protection against unfair contract terms

With unregulated loans, protections come primarily through:

• The reputation and standards of the lender
• General consumer law and contract law
• Working with FCA-authorised brokers who maintain professional standards

One common misconception is that unregulated means ‘risky’ or ‘unscrupulous.’ In reality, many unregulated bridging lenders maintain high professional standards, especially those working through established brokers. The real question isn’t “regulated or unregulated?” but rather “is this loan appropriate for my specific circumstances?”

Who Needs Each Type of Bridging Finance?

Regulated Bridging Scenarios

You’ll likely need a regulated bridging loan when:

• You’re buying a new home before selling your current one
• You’re renovating your main residence
• You’re purchasing a property at auction that you’ll live in
• You need to complete quickly on a residential purchase

For example, if you’ve found your dream home but your buyer has pulled out, a regulated bridging loan can help you secure the new property while you find another buyer for your current home.

Unregulated Bridging Scenarios

Unregulated bridging makes sense when:

• You’re growing your property investment portfolio
• You’re purchasing commercial premises
• You’re developing land or converting properties
• You need funds for a business opportunity

A property developer looking to purchase a row of shops for conversion to flats would use an unregulated bridging loan, as would a business owner needing quick finance to purchase their trading premises.

The right choice depends on your purpose, experience level, and how you’ll use the property. Your exit strategy—how you’ll repay the loan—also plays a key role in determining which option works best.

Working with a Broker

Finding the right bridging loan becomes much easier with specialist advice. A good broker:

How Brokers Help with Bridging Finance

An experienced broker will:

• Assess whether you need regulated or unregulated finance
• Find lenders suited to your specific circumstances
• Handle complex application paperwork
• Explain all fees and charges clearly
• Help structure your exit strategy

Brokers have access to the whole lending market, including specialist lenders who don’t deal directly with the public. This means more options and often better rates than going direct.

At Drake Mortgages, we’re FCA-authorised and can advise on both regulated and unregulated bridging loans. Our team understands the nuances of short-term lending and can match you with the right solution based on your needs.