Regulated Bridging

Building up equity in real estate is a core investment plan for many individuals throughout the UK, and regulated bridging can help release this equity

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Ownership of real estate is one of the top investments made in the UK, and owning a home is a long-term aim for many individuals across the country. Over the course of many years, a home can soak up a great deal of cash as the owners slowly build up equity through mortgage payments, which makes a homeowner’s property a highly valuable asset. The trouble is, capital tied up in real estate is inflexible, and cannot easily be used for any other purposes. In order to realise the value of real estate for new investment opportunities, it’s necessary for homeowners to release equity from their property with a loan.

The financial landscape can change dramatically with time, and homeowners might find themselves in a position where a lump sum of capital is more immediately productive for them than the equity they hold in property. This could be to purchase a new home, a buy-to-let property, to provide funds to start business or for personal projects, and finding a fast, efficient way of converting equity into capital is vital for the success of these endeavours. Bridging loans provide an ideal solution for homeowners who wish to convert their real estate holdings into cash for investment, and this form of finance is perfect for short-term financial cover. It’s important to note that a bridging loan is a form of secured finance, and when taken out against a property’s equity it functions similarly to a mortgage; the lender is able to repossess the borrower’s property, should they fail to repay. Because of this, it’s vital that anyone considering regulated bridging finance as a way to release equity consults a financial advisor before committing to a course of action.

What is Regulated Bridging?

Bridging loans are short-term secured loans that are typically used to cover costs quickly, before long-term finances can be arranged. Standard bridging loans are unregulated - that is to say, the specific terms of bridging loans are decided by the lenders themselves, and are typically not subject to oversight. However, any loan which is secured on an owner-occupied property (as with a mortgage) must adhere to the conditions of the Financial Conduct Authority, which sets out various restrictions on how these loans must be provided. Any bridging lender who wishes to offer loans secured on an owner-occupied property must seek and receive FCA accreditation, and not all bridging providers do so. This means that regulated bridging is not available from all bridging providers, and only specialised lenders are able to offer these products to homeowners.

There are some subtle differences in the ways different bridging loans are regulated. These mainly come down to the ways in which the loan is secured against the homeowner’s property, and whether this is a first or second charge security. If the bridging lender is taking out a first charge as the security for the loan, they are the only lender financing the asset; this happens if the borrower is buying a new home, and uses a bridging loan to purchase the property, or if they’re securing against their existing home and have paid off their mortgage. In these situations, the FCA treats these loans as “regulated mortgage contracts”, and the lender will be subject to the same stringent checks as any mortgage provider.

If the borrower does not outright own the asset they’re using as security (if they’re still paying off their mortgage, for instance), then the bridging lender will only be able to offer a second charge loan. Second charge loans against an owner-occupied property are still regulated, but in a slightly different way; these are “consumer credit loans”, and though the FCA still places tough requirements on these loans they are not treated as mortgages.

Using Regulated Bridging

Regulated bridging loans provide an excellent way of creating capital at short notice. While many homeowners think of remortgaging as their only option for raising cash, a bridging loan features several key advantages over this form of lending:

 

Speed: Bridging lenders are able to take a loan from initial application to approval in a very short space of time, and can even sometimes agree to a loan on the spot. Once approval is given, the money can be made available in as little as 48 hours - this contrasts massively with the long drawn-out mortgage application process.

Flexible Terms: No two borrowers are the same, and bridging lenders are often able to create a bespoke loan package that meets the needs of their customers. Because bridging providers are often the principal lenders, they can be extremely adaptable when it comes to arranging loan terms.

Situational Approach: Mortgage providers are inherently over-cautious, and will often turn down borrowers for the smallest of blots on their credit history. Bridging lenders take a more holistic approach, though, and work to understand each customer’s individual circumstances - in many cases, a bridging lender will be able to finance loans where a mainstream mortgage provider would not.

Creating Capital with Regulated Bridging

Because of these traits, bridging loans are an excellent tool for releasing equity from real estate. To highlight how a regulated bridging loan may be used to take advantage of opportunities, we’ll run through an example of a typical equity release scenario.

A homeowner has decided to extensively remodel their property, which is in need of modernisation - it’s a large house in a good area, and with a decent amount of investment could face a healthy price tag. They want to get moving as quickly as possible, though, as they’re keen to move out of the property - they turn to bridging finance as a way to quickly secure the funds they need. Upon application, they outline their proposal: turn their £300,000 home into a £500,000 home by investing £100,000 in remodelling and refurbishing, with the intention of selling the property once the work is done. Although the owners are still paying off their mortgage, they’ve managed to build up a fair chunk of equity worth £150,000; since this is comfortably in excess of the £100,000 they’re borrowing, the bridging lender is happy to approve the loan.

Once funds are supplied, the homeowners quickly escalate their refurbishment project, putting the house on the market just 6 months after receiving the initial loan. They find a cash buyer for the property, and quickly close the sale, repaying their mortgage provider and the bridging lender simultaneously whilst pocketing a healthy £100,000 pre-tax profit. This illustrates the flexibility and power of a bridging loan, and how it can be used to help homeowners take the next step on the property ladder.

Common Uses Of Bridging Finance

  • Overview

    Bridging loans are short-term financial solutions which are typically found in real estate and a common use is to purchase a property before a mortgage can be put in place.

  • 1st Charge Bridging Loans

    Bridging loans are a flexible form of finance that can be put to many uses; in this article we discuss the application of 1st charge bridging loans and finance

  • 2nd Charge Bridging Loans

    Bridging loans are a highly flexible form of finance, and we discuss why the ability to secure a 2nd charge on a single asset can be invaluable for borrowers

  • Bridging Refinance

    The flexibility and speed of bridging finance makes it ideally-suited to refinancing existing loan products, and helps real estate owners maximise earnings

  • Buying Before Selling

    Buying before selling enables homeowners to break free of their property chains, and can often be achieved with the help of bridging finance.

  • Chain Breaking Finance

    Breaking free of the property chain is crucial for many buyers, and bridging finance is often an ideal way to jump-start a property purchase

  • Discounted Purchase Finance

    Bridging loans can be used to enable the purchase of property at a discounted price, where speed and flexibility makes them an ideal choice for property developers

  • Divorce Finance

    Though it is never pretty, divorce is sometimes simply a fact of life. Bridging finance helps divorces resolve quickly and smoothly with the minimum disruption.

  • Fast Property Purchase

    Completing a property purchase quickly can be highly valuable to many buyers, and bridging loans can offer the ideal solution for a quick purchase

  • Freehold & Lease Extension Bridging

    Purchasing a lease extension or freehold to maintain property’s value is often the right choice for owners, and bridging loans enable fast leasehold extensions

  • High Value Property Bridging

    High value property is a highly competitive sector of the UK real estate market, and requires specialist bridging lenders to provide bespoke financial solutions

  • Hotel Finance

    Bridging loans are an excellent form of finance well-suited to the needs of hotels and hoteliers, and flexible funding solutions can be sought for many requirements

  • Inheritance Tax

    The UK Inheritance Tax is a significant bill for an estate’s executors. Meeting this quickly and easily is a task that bridging finance is ideally suited for.

  • Non-Status Bridging Loans

    Non-status bridging loans enable investors to develop their portfolios without the restrictions of affordability assessments, and are a powerful form of lending

  • Personal Bridging Loans

    Personal bridging loans are one of the most flexible financial products there are, and bridging lenders are able to meet the varying needs of their clients.

  • Property Downsizing

    Downsizing can be a smart move for many property owners, and a stable form of finance such as a bridging loan is needed to provide flexibility and security

  • Quick Purchase Bridging Finance

    Moving quickly can often be make-or-break for a deal, and it’s important that professionals are able to access fast-moving sources of finance.

  • Regulated Bridging

    High value property is a highly competitive sector of the UK real estate market, and requires specialist bridging lenders to provide bespoke financial solutions

  • VAT Bridging Finance

    VAT bills add a hefty charge on to property purchases, and developers must use VAT bridging loans in order to minimise their impact on a project’s profitability

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