How Do Bridging Loans Work for First-Time Buyers?

How Do Bridging Loans Work For First-Time Buyers?

It is often assumed that bridging finance is a facility restricted exclusively to existing homeowners; however, bridging loans can also be surprisingly flexible, accessible, and affordable options for first-time buyers.

Eligibility for bridging finance is assessed primarily on the borrower’s ability to provide acceptable security for the loan. If you have fixed assets, such as commercial property, residential property, or land, with a combined value that covers the costs of the loan, it is of no consequence whether you currently own a residential property.

When would a first-time buyer consider bridging finance?

Bridging loans differ from conventional mortgages in that they are designed to be repaid in full within a term of between 1 and 18 months. In addition, the funds can be made available within a matter of days, and after the first month, interest is charged on either a monthly or daily basis, typically less than 0.5% per month.

A bridging loan for a property purchase (when repaid promptly) can work out exponentially more cost-effectively than a long-term mortgage.

First-time buyers may consider bridging finance for several scenarios, including:

  • To purchase a property at auction at a bargain price
  • To buy a non-standard property that major lenders would refuse
  • To purchase a ‘fixer-upper’ to subsequently sell at a profit
  • To avoid the costs and binding obligations of a mortgage

Where a property is purchased by way of bridging finance, the loan can subsequently be repaid by taking out a conventional mortgage, raising the funds elsewhere, or selling.

How is first-time buyer bridging finance eligibility assessed?

For the most part, bridging finance specialists are primarily interested in the applicant’s ability to cover the costs of the loan with appropriate security. Most lenders exclusively accept residential and commercial properties and land as security.

A check on credit history may also be necessary, in accordance with the chosen lender.

Most important is proof of a viable exit strategy. This means providing the lender with a full disclosure of when and how you intend to repay the loan. For example, by selling the property you purchased and generating a profit,

How much can a first-time buyer borrow?

There are technically no limitations as to how much any applicant can borrow; it all depends on the value of the assets you offer to secure the loan. In most instances, however, bridging finance for property purchase transactions is available for up to 75/80% of the value of the property, depending on the individual circumstances of the applicant.

In all instances, it is advisable to consult with an independent broker at the earliest possible stage in order to ensure you get the best deal. Competitiveness varies enormously from one bridging loan specialist to the next, so it is important to conduct a thorough market search before deciding who to do business with.

For more information on any of the above or to discuss bridging loan applications in more detail, contact a member of the team at today.