What determines the regulatory status
The classification of a bridging loan as regulated or unregulated depends on a single factor: the intended use of the property being used as security. If the property is, has been, or will be occupied by the borrower or a close family member as their residence, the bridging loan is classified as regulated. If the property is purely for investment, commercial use, or development — and will not be occupied by the borrower or their family — the loan is unregulated.
This distinction is set by the Financial Conduct Authority and has been in place since mortgage regulation was introduced in the UK. It exists because the regulator considers that borrowers who are putting their home at risk deserve additional protections beyond those available in purely commercial transactions.
Regulated bridging loans
A regulated bridging loan falls under the FCA's Mortgage Conduct of Business rules (MCOB). This provides the borrower with several important protections that do not apply to unregulated loans.
Consumer protections
With a regulated bridging loan, the lender must carry out an affordability assessment to ensure the loan is suitable for the borrower. The lender must provide clear, standardised documentation including a Key Facts Illustration (KFI) that sets out all costs and terms in a comparable format. There is a reflection period that gives the borrower time to consider the offer before proceeding. The borrower also has access to the Financial Ombudsman Service if they have a complaint about the lender or broker, and the Financial Services Compensation Scheme (FSCS) provides a safety net if the lender or broker fails.
When regulated bridging applies
Common situations that require a regulated bridging loan include buying a new home before selling your existing one, where the bridge is secured against either property. If you are bridging to purchase a property you intend to live in, the loan must be regulated. Similarly, if the security property is currently your main residence, even if you plan to sell it, the bridging loan will be regulated.
It is worth noting that the term length on regulated bridging loans is capped at 12 months. If you need bridging finance for a longer period against a property you occupy, the options become more limited.
Regulated bridging loan rates
Regulated bridging loans do not necessarily cost more than unregulated ones. In fact, rates are broadly comparable across both categories. However, the additional compliance requirements mean that regulated bridging loans can sometimes take slightly longer to process than unregulated ones, as the lender must complete more thorough affordability and suitability checks.
Unregulated bridging loans
An unregulated bridging loan is one where the security property is not occupied, and will not be occupied, by the borrower or their close family as a residence. The majority of bridging loans in the UK are unregulated, reflecting the fact that most bridging finance is used for investment, development, or commercial purposes.
Greater flexibility
Because unregulated bridging loans sit outside the FCA's mortgage rules, lenders have greater flexibility in their lending criteria and processes. There is no mandatory affordability assessment (though lenders still assess the viability of the exit strategy), no requirement for a KFI, and no cooling-off period. This flexibility means that unregulated bridging loans can often be arranged faster and with less documentation than regulated ones.
Loan terms on unregulated bridging loans are not capped at 12 months, and some lenders offer terms of up to 24 or even 36 months for specific situations. The range of acceptable property types is also typically broader, with lenders more willing to consider unusual or complex properties as security.
Reduced consumer protections
The flip side of this flexibility is that borrowers have fewer formal protections. There is no access to the Financial Ombudsman Service for complaints about the loan, and the FSCS does not cover unregulated bridging loans. The lender is not required to assess affordability or suitability in the same way, which means borrowers need to take greater personal responsibility for ensuring the loan is appropriate for their situation.
This does not mean that unregulated bridging lenders operate irresponsibly. Most reputable lenders follow good practice standards regardless of regulatory classification, and the industry body — the Association of Short Term Lenders — promotes responsible lending across the sector. However, the formal protections are reduced, and borrowers should be aware of this.
How the classification affects your options
The regulatory classification of your bridging loan affects which lenders can offer it. Not all bridging lenders hold the FCA permissions needed to offer regulated loans. Some lenders specialise exclusively in unregulated bridging, while others offer both. If your situation requires a regulated loan, the pool of available lenders is somewhat smaller than for unregulated transactions, though there are still plenty of competitive options.
Your broker must also hold the appropriate FCA permissions to advise on regulated bridging loans. All brokers matched through Nesto hold the necessary authorisations for the type of loan you need.
Can the classification change?
Yes. The classification is determined at the point of application based on the intended use of the security property. If your plans change after the loan completes — for example, if you originally planned to let a property but then decide to move into it yourself — this does not retrospectively change the regulatory status of the loan. However, if the lender suspects that the stated purpose does not reflect the true intended use, they may decline the application.
Misrepresenting the use of the property to obtain an unregulated loan when a regulated one should apply is a serious matter. It could constitute fraud and would leave you without the consumer protections you are entitled to. Always be honest with your broker and lender about how the property will be used.
Which type do you need?
In most cases, the classification is determined by your circumstances rather than being a choice. If you or a family member will live in the property, you need a regulated loan. If the property is purely for investment or business purposes, it will be unregulated. Your broker will determine the correct classification based on the details of your situation.
Nesto matches you with specialist bridging loan brokers who handle both regulated and unregulated transactions. Whatever your situation, the matching service is free and ensures you are connected with a broker who has the right permissions and expertise for your specific needs.