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THE PROBLEMS WITH BRIDGING LOANS PART IV – REGULATED MORTGAGES

From purely a regulatory point of view, bridging loans fall into either of two categories, either they are regulated or unregulated loans, and therefore defined under the umbrella of either regulated mortgage contracts or unregulated mortgage contracts.

If they are unregulated, a lender that is itself regulated can provide an unregulated bridging loan in addition to providing regulated bridging loans, but a lender that is not regulated cannot lend or enter into a regulated bridging loan mortgage.

I have seen a couple of bridging loan cases where an unregulated lender has conspired to make the loans unregulated, by either using the company as the borrower (where the borrower was a shell company with no assets), or lending to an individual and claiming that if the funds were for business purposes, it made the loan an unregulated contract. Neither of these were correct.

In a recent case (Houssein & Ors v London Credit Ltd & Ors [2023] EWHC 1428 (Ch)), the judgement was that as the borrower was in the case an entity that supplied buy-to-let properties, the borrower did not meet the definition of consumer, and therefore from that perspective the mortgage would be unregulated. However, if it was the case that the borrower was contrived to be a company, it would have been a ‘sham’ and the loan would have been regulated.

In a future post I will examine the issue of interest charged on bridging loans.

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