Auction Finance Bridging Loans – A Guide

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If you want to buy a property at auction, make sure you’ve considered how you’ll finance it.

Whether you’re a seasoned landlord, property developer, investor, or you’re an individual buyer, buying property at an auction can be exciting.

It removes a lot of the hassle associated with traditional property purchases, you can find interesting projects and steal a bargain.

If you’re considering buying a property at auction, you might have a few questions — from how auctions work to securing finance to purchase property quickly.

In this guide, we answer these questions and more.

What is a Property Auction & what are they used for?

At a property auction, buyers can bid for properties online, on the phone, in person at the auction, or by proxy through the auctioneer.

Buying property at auction can be exciting; it’s fast-paced, and there are plenty of different properties to suit all types of buyers — from plots of land with planning permission to commercial properties and semi-detached houses. There are all kinds.

At an auction, buyers can steal themselves a bargain or find a house that becomes their next renovation project. But why would a property go through auction in the first place?

Sometimes, if a property has failed to sell on the open market or the seller needs a quick sale (i.e. death of the owner, repossession etc.), they might turn to an auction.

What kinds of people attend property auctions?

Auctions are popular amongst property developers and landlords looking for their next project — whether they’re looking for a property to turn into a buy-to-let or hoping to flip it for profit. An auction hides some hidden gems.

But although it’s popular with professionals, anyone looking to purchase a property can attend the auction.

It’s the perfect place to go if you’re looking to remove yourself from length property chains or sidestep the chance of being gazumped.

Once you’ve signed the contract for the property, on the very same day, it’s yours. No other buyers get a look in.

What is an Auction Bridging Loan and what are they used for?

Although you cut out a lot of the hassle, when buying through an auction, it all moves pretty fast.

This means you have to part with a 10% deposit on the day and complete the sale within just 28 days. And getting a mortgage can be lengthy and stressful when you’re up against a tight deadline.

That’s where auction bridging loans come in handy. Bridging loans give the buyer access to the funds they need quickly.

Allowing you to repay the loan in full once a mortgage has been put in place or when a property you’re selling completes.

Without paying the outstanding 90% on your auction property, you stand to lose both your deposit and the property. So time is of the essence.

What are the benefits of using a Bridging Loan for an Auction purchase?

Securing a bridging loan can take as little as 72 hours, whereas a mortgage application can take between two and four weeks.

Which, when you have to complete the purchase in just 28 days, it’s a pretty tight schedule.

A bridging loan gives buyers time to apply for a mortgage without worrying about delays it may cause.

The best way to make sure you can complete on tight auction deadlines is to prepare as much as possible in advance.

Work closely with your broker to make sure you have everything in place in case yours is the winning bid at auction.

Other benefits of using a bridging loan for auction purchases:

  • It’s flexible; decide to set up your finance before the auction or after.
  • You can customise it; the loan offered to you is specifically for your needs.
  • You can fund a variety of properties — properties traditional lenders wouldn’t touch.

And what are the risks?

As with any financial product, there are risks to consider with bridging finance.

Bridging finance can be an expensive financing option, so if your exit strategy to repay the loan relies on the sale of your current property, be aware that you might have to pay more interest.

Interest is charged on a monthly basis with a bridging loan, which means the longer you have it, the more it’ll cost you. Use our bridging loan calculator to find out just how much interest could cost you.

Learn more about bridging loan interest rates in our guide.

Before taking out bridging finance, make sure you read the lender’s fine print and understand precisely what’s expected of you. If in doubt, pay a professional to read through the legal pack.

How do I apply for an Auction Bridging Loan?

If you’ve decided that bridging finance is the best option for you, it’s time to start researching your lending options.

You should consider working with a specialist in bridging finance as it’s a complex finance type and working alongside experts means the job is done quicker than with other lenders.

When applying for a bridging loan, you’ll want to ensure you’re getting the best deal possible. The only way to do that is to compare bridging lenders — starting comparing today in our bridging loan directory.

Want to learn more about auction finance? Give this a read: A broker’s guide to auction finance and purchasing at auction.