Bridging loans provide a short-term solution to homeowners seeking to simultaneously sell their current home and buy a new one. Bridging loan regulations kick in when the applicant’s current home becomes collateral against the loan. The bridge loan exists in two versions, regulated and unregulated.

An unregulated bridge loan remains occupied by tenants but never the applicant. The applicant never intends to occupy the property either. Lenders allow applicants to finance the purchase or refinance of some properties. Acceptable properties include commercial, semi-commercial, and residential. The land is another acceptable property.

Essentially, an unregulated loan when a company or business requests bridging finance, not an individual.

Regulated bridging loans, however, gain this status when an individual applies for the financing. Bridging loans become regulated when the applicant occupies the property or intends to occupy the property. Loans only secured by the occupied property become first charge. Loans only secured by the home equity become second charge. 

The lender seeks to minimise risk in case the property doesn’t sell before the bridging finance expires. A bridging loan has an average lifespan of 12 months. The loan terms and other documentation will specify that the lender reserves the right to step in if the property doesn’t sell within a given timeframe. In most cases, the property does sell, especially during heated real estate markets. A lender always seeks to balance risk with reward and help clients achieve their homeownership goals. 

Bridging Loan Regulations Conclusion

Bridging loan regulations exist because the occupation status of the property plays a role. Homeowners use bridging loans to fill a financial gap between selling their current home and buying a new one. Thus, the property becomes collateral. If the homeowner incurs trouble selling their home, the lender steps in. Mortgage Street works with brokers and clients seeking bridging finance. For more information, contact our loan specialists.