Borrowing activity across the United Kingdom is once again heading for an all-time high.
Bridging finance is proving a popular alternative to conventional loans, both among private applicants and business borrowers but what are the main differences between residential bridging finance and a commercial bridging loan?
Comparing Residential and Commercial Bridging Finance
For the most part, the difference between the two financial products is largely self-explanatory. What is important to note though is that the distinction between residential and commercial bridging loans does not actually refer to the purpose of the loan. It instead refers to the type of property held as security i.e. the property you use to secure the loan you are applying for.
A bridging loan secured against a residential property is classified as a residential bridging loan, whereas the use of commercial property as security means it is a commercial bridging loan. Most lenders are willing to secure bridging loans against residential properties, but fewer lenders accept commercial or mixed-use properties i.e. flats with shops below.
FCA regulated or not?
Whether a property is formerly classified as FCA regulated or unregulated is determined by the proportion of the property used for residential living. For example, if 40% of the property or more is used as a dwelling, it will usually be classified and accepted as a regulated residential property.
The same also being true in reverse i.e. if 60% or more of the property is used for commercial purposes, it is classified and accepted as unregulated commercial security.
Should I Choose a Commercial or Residential Bridging Loan?
Choosing from the various types of bridging finance available means considering your requirements and preferences, alongside your budget. Though there are exceptions to the rule, residential bridging loans are typically offered at lower rates of interest and with lower overall borrowing costs.
This is why it is important to conduct a detailed like-for-like comparison of the various options available, with the help and support of an independent broker.
What Can Commercial and Residential Bridging Loans Be Used for?
One of the most appealing aspects of bridging finance in general is the way in which the funds can be used for almost any legal purpose. Irrespective of whether you apply for a commercial or residential bridging loan, there are no specific limitations placed on how the funds can be used.
The amount you will be able to borrow will be determined by the value of the property you use to secure the loan against and your wider financial circumstances.
Compare the Market with UK Property Finance…
If considering an application for bridging loans for any purpose, the importance of comparing the market in full cannot be overstated.
Contact a member of the team at UK property finance anytime to arrange a whole of market bridging finance comparison, free of charge and with no obligation to go ahead.
Craig Upton