Bridging and development finance — what is unregulated, what it costs, and how a case gets placed

A bridging or development loan to a UK limited company, secured on a property nobody involved in the deal actually lives in, generally sits outside the regulated mortgage contract regime altogether. The line the FCA draws is not about the loan's purpose or its short-term nature — it is about occupation: how much of the secured land is used, or intended to be used, as a dwelling, and by whom. Get that test right and you know, before anything else, whether you are dealing with a mortgage-regulated product or a business finance facility that the FCA's mortgage rules simply do not touch.

Key Takeaways

Where the regulated/unregulated line actually sits

The FCA Handbook's guidance on mortgage regulation, PERG 4, sets out six activities that need authorisation or exemption if carried on in the UK: arranging (bringing about) a regulated mortgage contract, making arrangements with a view to one, advising on one, entering into one as lender, administering one, and agreeing to carry on any of these. Whether any of that applies to a given bridging or development deal depends entirely on whether the underlying loan is a regulated mortgage contract in the first place.

The 40% dwelling test

The base definition requires at least 40% of the secured land to be used, or intended to be used, as or in connection with a dwelling. There is no requirement that the borrower personally lives there — the test is about the land's use, not the occupant's identity. This is the detail that trips people up: a mixed-use building converted into flats above a shop can cross the 40% line on floor area alone, well before anyone asks who is going to live in it.

Companies borrowing against their own property

Here is the exclusion that does the most work for limited-company bridging and development finance. Where a company, not acting as a trustee, borrows money to fund its own business and secures that loan against the company's own property, the FCA Handbook states directly that the mortgage contract is not a regulated mortgage contract — and a lender or arranger does not carry on a regulated activity by entering into, advising on, arranging or administering it. A development finance facility to a corporate borrower, secured on the company's own site, generally clears this bar regardless of what the finished units will eventually be used for, because the exclusion turns on who is borrowing and whose property secures it, not on the 40% dwelling split.

Sole traders and partnerships don't get the same pass

The company exclusion is narrow, and the Handbook is explicit about where it stops: if a lender makes a business-purpose loan to an individual sole trader, or (in England and Wales) a partnership, secured on the borrower's own house or houses, that contract is a regulated mortgage contract. Incorporating the borrowing vehicle is not incidental here — it is the difference between a facility the FCA's mortgage rules reach and one they do not.

The commercial-borrower exclusions that actually place a bridging or development deal

Beyond the company exclusion, two further exclusions in PERG 4.4 do most of the work in taking a genuinely commercial secured loan outside mortgage regulation, and they are not the same test.

The investment property loan exclusion — no minimum size

A loan is excluded as an investment property loan where less than 40% of the secured land is used, or intended to be used, as a dwelling by the borrower, a trust beneficiary, or a defined "related person," and the agreement is entered into wholly or predominantly for the borrower's business. Crucially, this exclusion carries no stated minimum loan amount — a small commercial bridging loan can rely on it just as a large one can, provided the occupation test and business-purpose test are both met.

The related person test

"Related person" is defined tightly: the borrower's (or beneficiary's) spouse or civil partner, someone in a marriage-like relationship with them, or their parent, brother, sister, child, grandparent or grandchild. If any of those people, rather than the borrower directly, will occupy 40% or more of the secured property as a dwelling, the investment property loan exclusion can be defeated even though the borrower themselves never intends to live there — a point worth checking on any deal involving a family member's future occupation.

The second charge business loan exclusion — the £25,000 route

A separate exclusion applies specifically to second charge lending: it is available where the lender provides credit exceeding £25,000, the mortgage ranks behind one or more other mortgages on the same land, and the loan is wholly or predominantly for the borrower's business. This is the exclusion that actually carries the £25,000 threshold often assumed to apply generally to commercial secured lending — it is a second-charge-specific route, not a substitute for the investment property loan exclusion on a first charge.

Buy-to-let sits in its own grey zone

A buy-to-let loan secured on the property being let is potentially a regulated mortgage contract, but it may be excluded either under the commercial-borrower routes above or under the separate consumer buy-to-let exclusions. It is not automatically one or the other — each buy-to-let facility has to be tested against the relevant exclusion on its own facts.

Trustees

A loan to a trustee is caught by the base regulated mortgage contract definition even where the trustee or the beneficiary is not an individual — a trust holding property for a large commercial company does not automatically fall outside the definition just because of the corporate beneficiary. In practice, the commercial-borrower exclusions above are usually what take such loans outside regulation, but that has to be established on the facts of the trust and the borrowing, not assumed from the outset.

Bridging loans specifically

The Handbook treats a bridging loan as simply one more type of product the regulated mortgage contract definition can cover, alongside an ordinary mortgage or a secured overdraft facility — bridging is not inherently unregulated as a category. What takes a particular bridging loan outside regulation is one of the exclusions above (occupation, business purpose, company ownership), or a further, narrower exclusion specific to certain second charge bridging loans set out separately in the Handbook. Where a bridging structure looks like it might depend on that narrower carve-out rather than the general commercial-borrower exclusions, get the current wording checked against the specific facility rather than assuming it applies.

The other regulatory line: consumer credit exemption

Whether a loan is a regulated mortgage contract is a separate question from whether it is exempt from consumer-credit-style regulation under the Regulated Activities Order. Both tests can matter on the same deal, and conflating them is a common mistake.

Under RAO article 60C(3), a credit agreement is an exempt agreement where the lender provides credit exceeding £25,000 and the agreement is entered into wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower. Where the agreement includes a borrower's written declaration, complying with FCA rules, that it is entered into wholly or predominantly for business purposes, the agreement is presumed to have been entered into for that purpose.

That presumption is not bulletproof. It fails if, at the time the agreement was entered into, the lender — or anyone acting on the lender's behalf — knew, or had reasonable cause to suspect, that the agreement was not in fact wholly or predominantly for business purposes. A signed declaration is a strong starting point, not a guarantee, and a packager or broker who has reason to doubt the stated purpose cannot simply rely on the paperwork.

Below £25,000, there is no general business exemption. It is tempting to assume a small loan taken wholly for business purposes is automatically exempt in the same way as a larger one, but the Order does not work that way: for credit of £25,000 or less, the only business-purpose exemptions available are narrow ones — a green deal plan on a non-domestic property, or a loan made under the Bounce Back Loan Scheme. A general small-business bridging loan just under the £25,000 line does not get a business-purpose exemption on that basis alone.

Why the two regimes are kept deliberately apart

The Consumer Credit Act's unfair-relationships remedy cannot be applied to a credit agreement that is itself exempt under RAO article 60C(2) — broadly, one that is a regulated mortgage contract or regulated home purchase plan, or was treated as one before 21 March 2016. That carve-out is a signal, not an accident: Parliament built the FCA's mortgage regulation and the Consumer Credit Act's consumer protections to sit apart from each other, rather than layering one on top of the other for the same facility.

What this actually costs

Bridging and development finance is not typically sold off a published rate card the way a residential mortgage or a standard buy-to-let facility is. Specialist lenders and packagers quote case by case, once they know the security, the exit and the borrower's track record — which is exactly why the market runs on brokers and packagers rather than comparison tables. Crystal Specialist Finance, one of the packagers active in this space, advertises bridging and development finance loans from £25,000 upward, and lists a completed £7.91m bridging facility for a development project among its case studies — useful as an indication of the range this market covers, from small commercial bridges to eight-figure development lines, rather than as a price guide. By contrast, adjacent products that are more standardised do get headline figures published — buy-to-let lending advertised up to 80% LTV with no stated maximum lending limit, for instance — which only underlines that bridging and development pricing genuinely is negotiated, not listed. Ask any lender or packager for the all-in cost in writing before treating a headline "from" figure as the number you will actually pay.

Why packagers exist

A packager sits between the broker and the specialist lender panel, and does the work an ordinary mortgage broker is not set up to do case by case: matching a bridging or development enquiry to the lender most likely to say yes, then handling the underwriting and documentation through to completion. Crystal Specialist Finance describes two working models — a referred business model, where the broker simply passes on a name and number and the packager handles advice, documentation, underwriting and completion directly; and a packaged business model, where the broker keeps the client relationship and the packager works the case behind the scenes. Both are paid by commission rather than a fee to the broker's client. The commercial case for using one is speed: Crystal Specialist Finance says it can issue terms in as little as one hour of matching a case to a suitable lender, which matters on a bridging deal where an auction completion date or a chain break does not wait for a slow underwriting process.

Regulated vs unregulated, at a glance

Scenario	Likely regulatory position
Limited company borrows for its own business, secured on the company's own property	Not a regulated mortgage contract
Sole trader or partnership borrows for business, secured on their own house	Regulated mortgage contract
Less than 40% of secured land used as a dwelling by the borrower/related person, loan wholly or predominantly for business	Excluded as an investment property loan — no minimum loan size
Second charge loan over £25,000, ranking behind another mortgage, wholly or predominantly for business	Excluded as a second charge business loan
Buy-to-let loan secured on the let property	Potentially regulated — depends on the commercial-borrower or consumer buy-to-let exclusions applying
Credit over £25,000, wholly or predominantly for business, with a valid written declaration	Exempt from consumer-credit-style regulation under RAO 60C(3)/(5), unless the lender knew or suspected otherwise
Credit of £25,000 or less, business purpose only	Generally not exempt under 60C — only narrow green deal / Bounce Back Loan carve-outs apply

Frequently Asked Questions

If my company borrows against a site with flats above a shop, is that automatically unregulated? If the company is borrowing for its own business and the property is the company's own, the company exclusion generally applies regardless of the dwelling split. The 40% dwelling test matters more where the borrower is an individual, or where someone connected to the borrower will occupy part of the finished scheme.

Does the £25,000 threshold apply to every commercial bridging loan? No. It is specific to the second charge business loan exclusion and to the separate RAO 60C consumer-credit exemption. The general investment property loan exclusion, which most first-charge commercial bridging relies on, has no stated minimum loan size at all.

Can I rely on a signed business-purpose declaration to keep a loan exempt? The declaration creates a presumption, not a guarantee. It fails if the lender, or anyone acting for the lender, knew or had reasonable cause to suspect the loan was not really wholly or predominantly for business.

Why would I use a packager instead of going straight to a specialist lender? Speed and access. A packager works a panel of lenders on your behalf, matches the case to whichever is likely to say yes, and can move faster on documentation than a broker unfamiliar with a specific lender's underwriting quirks — Crystal Specialist Finance, for example, quotes terms in as little as an hour once a case is matched.

Is a low headline rate on a bridging or development site the number I'll actually pay? Treat any advertised "from" figure as a starting point, not a quote. This market is priced case by case once the lender has seen the security and the exit — get the arrangement fee, the exit fee and the actual monthly cost confirmed in writing before you commit.

Getting the regulated/unregulated question right at the outset decides which lenders can even look at a deal, and how fast it can move. Deplexifi places bridging and development finance for limited companies against exactly this line, working the commercial-borrower exclusions rather than assuming a deal is unregulated because it happens to be short-term.

Assuming bridging finance is unregulated by nature — it is the occupation test and the borrower's identity (company vs sole trader/partnership) that decide this, not the short-term label, and a business-purpose declaration is a presumption the lender can lose if they had reason to doubt it.

Nothing here is regulated financial advice. Deplexifi arranges commercial finance for businesses — this article describes general lending practice and the published position of the sources listed below, not a recommendation for any individual business.