Property auctions can often be a great place to bag a bargain but bidding at auction isn’t always as straightforward as a lot of house buying programmes make it seem. Although it might feel exhilarating when you are raising your hand, that emotion can soon change to exasperation when the hammer comes down, if you do not have adequate finance already in place.
When a property is bought at auction you’ve 28 days to complete the purchase. Long term financing, such as mortgages, takes time to arrange and is tricky to obtain, but bridging loans offer a short-term solution for completion on auction properties.
Time is of the essence when you buy at auction and it is important that you find funding fast. This is where Bridging Options can help, as our short-term bridging finance loans can be quick to arrange and flexible enough to meet the needs of anyone who’s purchasing under the hammer.
What is auction finance?
Auction bridging loans are the most common form of finance for funding properties purchased at auction, as they are quick to secure and relatively easy to obtain.
Once you’ve secured the winning bid at auction, you will be expected to pay a 10% non-refundable deposit, with the remaining balance due within a 28 day period.
Typically, most high street banks are unable to guarantee mortgages within such tight timeframes, due to the stringent surveys, legal checks and paperwork they are legally required to carry out before releasing funds.
An auction bridging loan can be arranged in a few days, is flexible, requires little paperwork and is usually repaid on a ‘rolled-up’ basis. This means you don’t have to pay monthly interest, like you do each month with a mortgage. Instead, all costs are combined at the very end of the loan, solving your cash flow conundrums from start to finish.
At Bridging Options, we are experts in supplying auction finance and deal with a range of brokers to secure you a wide choice of rates.
How does auction bridging finance work?
Most people when looking to purchase property at auction, do so without having the full amount of funding in order to buy it outright. Therefore, auction bridging finance can either be arranged “in principle” prior to the auction date or post achieving a successful bid.
Bridging finance can be arranged quickly within the allotted 28 day period and is not dependent on any credit checks or affordability assessments.
Just like all types of bridging finance, your lender will be most concerned with knowing in advance how you plan to repay the loan – otherwise referred to as your exit strategy. Auction bridging loans are usually paid off once the property used to secure the loan has been sold or you have arranged a long-term mortgage.
How much can I borrow?
The amount available to borrow through an auction bridge loan will be based on your property portfolio and is entirely at our discretion. Please note that we quote a maximum loan to value rate (LTV), which is calculated by taking the size of the loan and dividing it by the price of the property you are using to secure the bridging loan.
To find out just how much you are eligible to borrow, take a look at our easy to use calculator and receive an instant, no obligation quote via your email or mobile.
Can you bid at auction subject to finance?
If you are buying a property at auction it is always best to have the finances in place beforehand so that you can seamlessly complete the sale. This doesn’t guarantee that you won’t be outbid, but it does ensure that you have everything ready to proceed with the sale should you be successful.
Afterall, the last thing you want to do is buy a property and then find out that you are unable to raise sufficient funds, thereby forfeiting your 10% deposit.
At Bridging Options, we strongly recommend that before going to auction you research into what auction bridge finance is available and if possible, go armed into the auction house with an “agreement in principle” (AIP). This is a conditional offer of the bridging loan, subject to a full valuation and application.
Advantages of using bridging finance for auction purchases
Although auction bridge loans may not be considered the most cost effective forms of funding; in addition to the obvious benefits of speed and flexibility; they can offer many advantages to borrowers over and above traditional finance solutions. These include:
- The purchase of high risk properties. A lot of auction properties are sold due to their state of repair and therefore may not have working kitchens, bathrooms or amenities, making them unsuitable for a mortgage. Bridging finance can be arranged regardless of the state of the property or construction type, allowing you to undertake the refurbishment work and either refinance or sell the property on.
- Cutting down on reams of paperwork. Unlike mortgage providers who require information on your income, employment and credit history; bridging loan lenders are primarily only interested in your exit route plan. This is good news if you are self-employed, have a poor credit rating or simply can’t wait for the paperwork to be processed.
- Short term agreements. A bridging loan has a definitive end date and are generally only available for a short period of time – usually between 6-18 months.
Steps for securing an auction bridge loan
As with all of our bridging loan agreements, auction bridge finance is not something to be taken lightly. Therefore, you need to consider and fully understand the implications, rates, repayment terms, and suitability. Our lenders will happily listen, advise and talk you through any concerns that you may have.
At Bridging Options, our auction bridge loans are assessed on an individual basis, and although they only take a matter of days to process, we do require some detailed information beforehand.
It may be that having discussed all the viable options with us, that a different type of bridge loan would be more suitable for your situation. For example, if the property you intend to buy needs significant renovations then development finance which covers both the sale of the purchase and all construction costs, may be more appropriate.
If you do think that auction finance is right for you and would like to go ahead with the borrowing, then our brokers are on hand to find the best rates available.
Why choose Bridging Options?
At Bridging Options, we specialise in auction finance and offer a bespoke service to all of our clients. When you contact us, we will assign you an experienced broker who can handle your query from initial enquiry right through to completion.
We aim to provide full, detailed terms and conditions for all of our loans as quickly as possible and, if applicable, can administer a decision in principle within 24 hours. Bridging finance can be organised before, during or after auction, with valuations carried out prior to a successful bid.
Our rates and fees are highly competitive and tailored to you. We are able to offer other types of development bridging finance, depending on your property needs, so please contact us for further information.