Regulated Bridging Loans
If a bridging loan is secured against a property you or a close family member live in, or genuinely intend to live in, it’s regulated by the Financial Conduct Authority – bringing specific protections that unregulated bridging, used for investment or commercial purposes, doesn’t carry.
What Actually Triggers Regulation
Under Article 61 of the Regulated Activities Order, a bridging loan becomes a regulated mortgage contract when the borrower, or a close family member, occupies or genuinely intends to occupy at least 40% of the secured property as a dwelling. This is a property-and-occupancy test, not a borrower preference – it follows how the property is actually used, regardless of how the loan is described or labelled.
A Relatively Recent Change
Before the Mortgage Credit Directive came into force on 21 March 2016, all bridging finance was treated as unregulated, regardless of who lived in the property. Since then, bridging secured against owner-occupied residential property has fallen under the same FCA supervision as a standard regulated mortgage contract, meaning specific conduct rules and consumer protections now apply.
Why the 40% Occupancy Test Matters So Much
What matters is genuine occupancy or intended occupancy, not how much of the security property is technically “residential” in description. A mixed-use building where at least 40% of the floor area is used, or intended to be used, as a family home can qualify as regulated, even if the remainder is let commercially. Conversely, a residential-looking property purchased purely as a buy-to-let investment, with no intention of the borrower or family living there, is typically unregulated.
Both First and Second Charge Can Be Regulated
Regulation depends on occupancy, not on whether the facility sits as a first or second charge against the property. A second charge bridging loan secured behind an existing mortgage on your own home can be just as regulated as a first charge facility, provided the occupancy test is met.
What Regulation Actually Gives You
A regulated bridging loan comes with a formal affordability assessment, a documented suitability record of the recommendation made to you, and access to the Financial Ombudsman Service if something goes wrong. Terms are typically capped at 12 months, though some lenders will extend to 24 months for genuinely well-structured cases, reflecting the more conservative approach regulation encourages.
Temporarily Empty Properties Still Count
A property standing empty at the point of application isn’t automatically unregulated – if you genuinely intend to live there once purchased or once works are complete, the intended-occupation limb of the test applies, and the loan is typically still classified as regulated. It’s worth being clear and honest about your actual intentions with your broker from the outset, rather than assuming an empty property automatically falls outside regulation.
Why You Can’t Simply Declare a Loan “For Business”
A borrower stating that funds are for a business purpose doesn’t automatically move the loan outside regulation if the underlying occupancy facts say otherwise. Lenders need credible supporting evidence before treating a case as business-purpose exempt, and getting this wrong carries genuine consequences for everyone involved. It’s worth being straightforward about your actual circumstances rather than trying to structure around the test.
Common Situations Where Regulated Bridging Applies
This typically covers buying a new home before your current one sells, breaking a property chain, renovating your own home before it’s in a mortgageable condition, buying a residential property at auction that you intend to live in, and raising funds as part of a divorce settlement, such as buying out a co-owner of a shared family home.
How Regulated Bridging Compares on Cost
It’s a common misconception that regulated bridging is automatically more expensive than unregulated – in practice, owner-occupied residential security often has a deeper resale market, and the affordability discipline regulation requires can make pricing genuinely competitive at equivalent loan-to-value, rather than a straightforward premium.
Unregulated Bridging as the Alternative
If your borrowing is genuinely for investment, buy-to-let, or commercial purposes, with no intention of you or a family member living in the property, unregulated bridging is the appropriate route instead, generally offering more flexibility on structure and a broader lender pool for that kind of transaction.
Frequently Asked Questions
What actually makes a bridging loan regulated?
Whether you or a close family member occupies, or genuinely intends to occupy, at least 40% of the secured property as a dwelling – this is a property and occupancy test, not a choice.
Can a second charge bridging loan be regulated?
Yes – regulation depends on occupancy, not on whether the facility is a first or second charge.
Does an empty property automatically mean the loan is unregulated?
Not necessarily – if you genuinely intend to live there, the intended-occupation test can still apply.
What protections does a regulated bridging loan actually provide?
A formal affordability assessment, a documented suitability record, and access to the Financial Ombudsman Service if something goes wrong.
Is regulated bridging always more expensive than unregulated?
Not necessarily – owner-occupied residential security can price competitively at equivalent loan-to-value, given the deeper resale market and affordability discipline involved.
Get in touch with details of the property and how it’s being used, and we’ll help you understand whether your specific situation falls within regulated or unregulated bridging.
