Understanding Regulated Bridging Loans for Residential Buyers

By Ross Williams, Specialist Finance Account Manager – Bridging, OSB Group

Why Regulated Bridging Loans Are Overlooked

As an industry, we talk a lot about helping clients find the right mortgage product for their circumstances, but regulated bridging loans remain something of an underused tool in many advisers’ kitbags.

In reality they can provide a flexible solution that allows buyers to proceed with confidence in situations where the clock is ticking and the conventional mortgage route isn’t an immediate option.

What Is a Regulated Bridging Loan?

At its simplest, a regulated bridging loan is secured against a property the customer either currently lives in or intends to live in as their main residence. It’s a short-term financing option – typically for up to 12 months – designed to bridge a gap until a longer-term arrangement is in place.

Common Scenarios for Bridging

Over the last five years, we’ve seen a marked rise in what’s known as chain-break bridging. This was amplified by the disruption caused by the pandemic and ongoing market uncertainty, which has made it harder for some clients to sell their existing property before buying their next. In these cases, a regulated bridge can give them the breathing space to complete their onward purchase while taking the time needed to sell their current home.

Another common use is when a property is not currently in a habitable condition. If a high street lender won’t provide a mortgage for that reason, a bridging lender can step in, allowing the client to complete essential works. Once the property meets the required standard, the adviser can arrange a remortgage with a longer-term lender. Auction purchases also fall into this space, but chain breaks and non-habitable properties remain the most frequent scenarios.

The Central Role of Exit Strategies

Whatever the reason for the loan, the most important factor for any lender is the exit strategy. This is the plan for how the loan will be repaid at the end of its term. It’s the first conversation we have with an adviser on any regulated case. The two most common exit routes are the sale of an existing property or refinancing onto a longer-term mortgage.

In the first case, we’ll look at the valuer’s assessment of what the property is likely to achieve on the open market, which gives us comfort that a sale is realistic within 12 months. In the second, we’ll assess proof of income and affordability in the same way as a standard term mortgage. The refinance doesn’t have to be with us – it can be with any suitable lender – but the adviser must be able to evidence that it’s achievable.

Typical Loan Structures and Costs

In practice, most lenders will offer regulated bridging at up to around 75% loan-to-value on a gross basis. Interest is generally retained or rolled up, rather than paid monthly, to avoid the burden of additional repayments while the client may still be covering their existing mortgage. This means that interest and fees, such as a typical 2% arrangement fee, are deducted from the gross amount, leaving a net loan figure available to the client. From day one, the adviser should be planning and preparing the agreed exit route so there’s a clear path to repayment.

How Advisers Can Gain Confidence with Bridging

For advisers who are less familiar with regulated bridging, the best starting point is to speak directly to account managers at lenders who operate in this space. The sector is surprisingly collaborative – if a case isn’t right for one lender, they will often signpost you to another who may be able to help. If it’s your first regulated bridging case, let the lender know, so they can guide you through the process and help set clear expectations from submission through to completion.

Collaboration Leads to Success

Ultimately, success with regulated bridging comes down to a thorough fact-find. Understanding the client’s current position, their desired outcome, and any relevant background details can make all the difference. Those nuggets of information can help the lender tailor a solution and give the client the best chance of a smooth transition from short-term finance to their long-term goal.