Bridging Finance for Auction Property


Author: Myles Robinson - Advisor

Posted: Apr 27, 2022

Bridging Finance for Auction Property Purchases

Purchasing properties at auction is an attractive prospect for a lot of investors and developers, as it enables them to own property at an affordable price. Nevertheless, there’s a strict rule in these auctions that binds the buyer to pay the full amount for the property within 28 days. This time limit is too fast for auction property mortgages to be arranged appropriately. Instead, the buyers are required to pursue an alternative form of financing that offers the amount owed in a short period.

Auction finance is a popular use for bridging loans. Auction bridging loans help the buyer bridge a gap till a sale or long-term mortgage is secured. However, the terms and conditions should be understood perfectly before you proceed to the next step. Bridging finance for auction property purchases is available for buy-to-let and residential properties, land, semi-commercial, development finance and commercial buildings.

How auction bridging finance works

You can bid at any auction subject to finances as long as you’ve 10 per cent of the buying price at hand when the hammer falls, and are ready to lose that if you fail to pay the full amount within 28 days.

The 10 per cent is the deposit, and paying it on that day is a necessity as a part of auctioning. The balance due is to be paid within 28 days, which is a limited time to arrange a mortgage. As stated earlier, this is where an auction bridge loan comes in handy, as it enables one to meet this deadline providing you are eligible.

Most lenders such as Halifax or Santander look at the exit strategy. For example, whether you’ll repay the action bridging loan at the end of term through a remortgage or sale of the property.

Deposit needed for auction bridging loan to be approved

Bridging finance usually has a cap to a loan-to-value (LTV) ratio of 70 to 75 per cent for most cases, which means you will be required to pay a deposit of at least 30 to 35 per cent of the auction property’s value because the interest is a factor in.

If the property deals have higher risks, the LTV can drop to between 50 and 60 per cent, and what is classified as risky varies from one lender to another. Higher LTV agreements exist, meaning that you can acquire up to 100 per cent, but you will need to secure the bridging loan against the assets you own or any additional properties.

Things to ensure before bidding for properties at an auction

  • Availability of auction finance loans
  • Check whether the project will be profitable or viable
  • Ensure the property you are buying has no unprecedented issues
  • Secure a legal pack from auctioneers that contains property information, local authority search, and title deeds.
  • Conduct any legal search to see whether there are restrictive covenants attached to the property.
  • Auction properties usually need further renovations, so it’s advisable you visit the property with a surveyor, architect, or a builder to gauge all the costs involved before taking out a bridging loan.
  • Review the catalogue for any terms and conditions set out.

Loan Corp is on hand to help you with your next auction finance bridging loan. Contact us today and we can help and advise you of the best and most suitable way to finance your next property at auction.

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