Unregulated bridging loans are fast and effective but choose carefully
Unregulated bridging is a product catered towards those in the commercial market. The flexibility provided by unregulated loans allows for more wriggle room than regulated bridging. The key difference between regulated and unregulated bridging is that unregulated bridging is NOT secured on a house you live in and is NOT regulated to same degree by the Financial conduct authority (FCA). Hence the term, unregulated. Unregulated loans are usually secured against other land or property owned as an investment or for business. So, if you are looking for a building or property to invest in or plan on obtain a commercial property, you may require unregulated bridging
Benefits of unregulated bridging
This type of bridging finance tends to benefits those in the commercial market. These benefits include:
No FCA Regulations
Due to unregulated loans not being watched over by the FCA, they are much quicker to apply for. There are a lot less FCA related rules the lender has to follow and explain to the borrower. You could finalise a decision within hours and have funds arrive in days. However, this can be both a blessing and a curse.
There are many unregulated lenders and you are unlikely to know which will treat you fairly and which won’t. Some may not. To help overcome this go via a regulated broker which is FCA authorised. Then ideally go for a regulated lender which also offers unregulated products. Whilst the product may be unregulated, both unregulated brokers and lenders are required to abide by the rules and treat you fairly
Another benefit is that there are no monthly payments to make. Most bridging lenders will roll-up the interest. As a result, you will instead pay one lump sum at the end of the bridging loan term. Regulated loans can only roll up the interest for 12 months Those who invest in property benefit from unregulated bridging as the loan terms can last from between 1-36 months. As a result, if an investor has money tied up in property, they can use a bridging loan to bridge the gap until the property sells, or is refinanced, to repay the loan.
Unregulated bridging loans are also way more flexible as they can be used for various projects including:
- Construction Projects
- Acquisition of Land
Plus, they are a good alternative for investors who cannot achieve a standard loan to aid them with their projects. Also, unregulated bridging can be available as a second charge loan. Lenders can still approve finance even if there is already a charge on the property.
Property auctions are one of the best place for property investors to find themselves a suitable property. They will meticulously search through the properties available. When they find the right property and acquire it, there is a 28 day period from exchange to completion. Unregulated bridging finance is the quick answer to attaining the funds necessary to complete the purchase of a property at auction. However, there is no guarantee that the loan will complete in 28 days. Do your homework as getting it wrong could cost your 10% deposit
No Credit Checks
Most traditional lenders have strict criteria that must be met if a borrower requires a loan. That is why they will carry out credit history checks. Because of the nature of unregulated bridging finance, lenders tend to shift their focus from credit history to investment profits. This would benefit experienced property investors with a poor credit score.
Areas of concern regarding unregulated bridging
Despite how beneficial they are to those looking to make investments to increase capital, there are several points to think about:
Higher interest rates
Unregulated bridging loans do tend to have higher interest rates than other bridging products. Therefore, term extensions could be expensive if you need more time to pay off your loan. In addition, you could potentially end up in the situation whereby your exit strategy out of the bridging loan fails to pay out. If this happens, penalties and exit fees could spike the costs you may have to pay out considerably. Talk to a broker about reputable lenders and read the small print.
No protection from the FCA
Also, due to unregulated finance not being scrutinised by the FCA, there is less protection from financial misconduct from lenders. FCA regulated bridging is primarily aimed at offering a homeowner funds whilst offering their house as collateral. They can help out with complaints from homeowners who may feel that they have been subjected to bad advice or financial misconduct. The FCA currently provides no protection to the commercially based unregulated bridging products.
Converting commercial property into residential property
Converting commercial buildings into residential buildings is an option but you have to be wary of the laws surrounding it. If you plan to buy a commercial building to turn it into a residential building, it is not always as easy as sticking a few bathrooms and kitchens in. You may need planning permission before any conversion can begin. Some already come with permission but you will definitely need to check. You do not want the legal and financial complications of a planning breach. Similarly don’t buy a property with expensive bridging and find you can’t get the permissions you need to convert the property and achieve your profitable exit.
Considering unregulated bridging?
Unregulated bridging finance is a quick source of funding that can help any investor in the commercial market. It is always a good idea to speak to a financial advisor if you are considering making an investment. If you have any questions, courses for concern or would like a bridging loan of your own; speak to one of our professionals here at Promise Money today!