Regulated vs Unregulated Bridging Finance Explained

What Makes a Bridging Loan Regulated

A bridging loan becomes regulated under the Financial Services and Markets Act 2000 when a first or second charge is taken over a property that the borrower, or a close relative, intends to occupy as their main or secondary residence. The FCA's Mortgage Credit Directive rules then apply, and the lender must be FCA-authorised to offer that product.

For limited companies and LLPs, regulated bridging is rarely relevant because corporate entities cannot occupy a dwelling in the personal sense. However, a director-shareholder purchasing a property partly for personal use could trigger the regulated category. Advisers must assess occupancy intent carefully at the outset, because re-categorising mid-transaction is both costly and time-consuming.

Unregulated Bridging: Scope and Common Uses

Unregulated bridging covers any short-term secured lending where the security is a commercial property, a buy-to-let, land, or any asset where no regulated occupier is involved. This is the dominant category for SME borrowers and property investors.

Typical uses include purchasing at auction within the standard 28-day completion window, funding a refurbishment before refinancing to a commercial mortgage, acquiring a commercial premises before a new term loan is arranged, or releasing equity from an investment property quickly. Lenders operating solely in the unregulated space are not required to hold FCA permissions for mortgage lending, though most reputable UK bridging lenders hold permissions voluntarily or use an FCA-authorised intermediary chain to demonstrate conduct standards.

First and Second Charge Bridging

A first charge bridging loan is secured as the primary debt against the property; a second charge sits behind an existing mortgage or first charge lender, meaning it is repaid second in any enforcement scenario.

Second charge bridging commands higher interest rates, typically 0.85 to 1.5 percent per month compared to 0.55 to 0.95 percent for first charge deals on comparable assets, because the lender carries greater recovery risk. Lenders also cap LTV more conservatively on second charge: net loan to value of 65 to 70 percent is common, versus up to 75 to 80 percent for first charge. Existing first charge lenders may need to provide a deed of priority or consent, which can add one to two weeks to completion timelines. Businesses should confirm the existing lender's consent position before incurring survey or legal costs.

LTV, Pricing and Cost Structure

Bridging loans are priced monthly rather than annually: a rate of 0.75 percent per month equates to roughly 9 percent per annum simple, though compounding and fees mean the effective cost is higher when held for several months.

Arrangement fees of 1 to 2 percent of the gross loan are standard, charged on entry. Exit fees of 0.5 to 1 percent may also apply. Legal fees are dual: the borrower pays their own solicitor and the lender's solicitor. Valuation costs are the borrower's responsibility and are non-refundable if a deal falls through. On a gross loan of £500,000, total entry costs including arrangement fee, dual legal, and valuation can reach £8,000 to £14,000 before any monthly interest. Modelling the full cost against the hold period and exit route is essential before committing.

Exit Routes and Why They Matter

Lenders underwrite the exit route as rigorously as the security itself; without a credible exit, most bridging applications will not progress past credit committee.

The three common exits are: sale of the property, refinance to a commercial mortgage or buy-to-let mortgage, and injection of business cash flow or equity. Sale exits require evidence of realistic market value and, where possible, a heads of terms already in place. Refinance exits require a sanity check that the borrower will meet the term lender's debt service coverage ratio, typically 125 to 145 percent of interest, at the anticipated refinance rate. Lenders will often request an agreement in principle from the proposed term lender. If the exit route deteriorates, most bridging facilities allow one extension at additional cost, but relying on extensions as a primary plan is a poor strategy.

Auction Finance as a Bridging Subset

Auction finance is unregulated bridging structured specifically to meet the 28-day completion deadline imposed by auction house contracts; failure to complete forfeits the 10 percent deposit paid on the fall of the hammer.

Speed is the defining characteristic. Some lenders can issue a decision in principle within four hours and complete within five to ten working days where the security is straightforward. To achieve this, borrowers should prepare a concise pack before bidding: identification documents, six months of business bank statements, details of the intended exit, and confirmation of the maximum bid. Automated valuation models are increasingly used on residential investment properties below £750,000 to remove the valuation delay. Desktop or drive-by valuations are used on slightly higher values. Full RICS surveys are still required on commercial lots, which elongates the timeline and should be factored into auction strategy.

Choosing a Bridging Lender: Key Criteria

Not all bridging lenders operate at the same speed or apply consistent underwriting criteria; selecting the right lender for the asset type and transaction profile materially affects both cost and execution certainty.

Criteria worth assessing include: whether the lender funds from its own balance sheet or relies on warehouse lines that can be withdrawn, the lender's published experience with the specific asset class such as mixed-use, HMO, or industrial, the average time from application to funds released based on verifiable broker feedback, and the flexibility of the product on second charges or unusual titles such as flying freeholds or short leases. Whole-of-market brokers with access to specialist bridging panels will typically source terms from 15 to 30 lenders in one submission, which reduces both time and the credit footprint left by multiple direct enquiries.

Step-by-step

1. Confirm whether any regulated occupier will live in the security property, to establish regulated or unregulated status before approaching lenders.
2. Define the exit route clearly: sale, refinance to term, or business cash injection. Obtain an agreement in principle from the term lender if refinance is the exit.
3. Prepare a full information pack: company accounts, bank statements (6 months), ID, details of the security property, and evidence supporting the exit.
4. Engage a whole-of-market bridging broker to submit a single enquiry across multiple lenders, preserving your credit profile.
5. Compare indicative terms on gross loan cost over the expected hold period, not headline monthly rate alone. Include arrangement fees, dual legal costs, and any exit fees.
6. Instruct solicitors on both sides simultaneously to avoid losing days. Confirm the existing first charge lender's consent position if a second charge is required.
7. Draw down funds and monitor the exit timeline from day one. If delays arise, contact the lender about an extension before the loan term expires rather than at expiry.

Example

Frequently asked questions

By Oliver Mackman, Director, Best Business Loans Ltd. Last reviewed 2026-05-28.