How Does A Bridging Loan Work For First Time Buyers?
Bridging loans, also known as bridging finance, are a short-term finance option, secured against property. They are designed as a tool to bridge the gap between 2 events, for instance, purchasing a property and securing a mortgage.
This type of lending is usually arranged via a trusted broker for a term of 1-18 months, often with the interest either added to or deducted from the loan repayments. Our specialist team is on hand for more information about available products and interest rates.
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How Can Bridging Finance Help Me?
There are a number of reasons why a first-time buyer may need to consider borrowing via short-term bridging finance as opposed to applying for a mortgage. The main ones are as follows:
- To buy and refurbish a property before taking out a mortgage or selling the property
- To invest in a new property below market value
- To complete the purchase of a property bought at auction
How Can A First-Time Buyer Borrow With Bridging Loans?
Bridging loans are available up to 80% of the value of the property or 70% if you are planning on living in the property (although this depends on the lender).
When you’re looking to undertake a refurbishment project, we may also be able to provide the funds needed to undertake the works on the property. However, this is only a realistic option where there will be a strong uplift in the property value to justify the lending amount involved in bridging finance.
In another change from the standard mortgage process, the amount of bridging finance available will be limited by your chosen exit strategy and perceived ability to meet the repayment plan. When looking to refinance to a new lender to repay the bridging loan, you will be asked to provide an agreement in principle from your new lender. Where this is the case, your maximum loan will usually be limited by the amount available according to your agreement in principle.
What Information Will I Have to Provide To Access Bridging Finance?
Bridging loan lenders will need to know some basic information about you, which is usually taken down using an application form which brokers like ABC Finance can assist with. In addition, you will usually be required to provide the following:
- Proof of ID and residence
- Proof of any deposit
- Details of your exit strategy
You may also be asked to prove your income, where you plan to exit your bridging loan by refinancing to a new lender.
For property refurbishment bridging finance, you will also have to provide detail on the works you plan on undertaking, the costs of works and timescales for its completion. You can learn more about this in our guide on bridging finance for property developers.
About The Author
This content was produced by our Commercial Lending Director, Gary Hemming. Gary has over 15 years’ experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans. He is widely respected in his field and regularly provides expert commentary for specialist trade publications, specialist business press as well as local and national press.
Gary Hemming CeMAP CeFA CeRGI CSP -
Commercial Lending Director
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