Bridging Loans For First Time Buyers

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
• To complete a new property investment that couldn’t be funded using a mortgage

How can a first-time buyer borrow with bridging loans?

Bridging loans are available up to 75% 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.

How much will it cost?

The costs associated with taking out a bridging loan can largely be broken down to 2 main costs, the interest rate and arrangement fees. There are certain other set up costs, such as valuation fees and legal costs, which are quoted on a case-by-case basis, but the interest and arrangement fees tend to be the biggest expenses.

Arrangement fees are charged by the lender and are usually 2% of the loan amount. For loans over £300,000, these fees may be reduced slightly, to 1-1.5% for larger, low risk applications.

In addition to the arrangement fee, interest will be charged and is usually quoted on a monthly basis, rather than annually, as with other types of finance.

Interest rates start from 0.48% per month and can be as high as 1.5% per month. In practice, most loans for first time buyers will be between 0.48-0.99% per month.

Use our instant comparison tool to check the rates that you’ll be eligible for based on your circumstances.

What information will I have to provide?

Bridging loan lenders will need to know some basic information about you, which is usually taken down using an application form. 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.