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Buyer guide to auction finance: bridging loans

07.09.2017 Site Manager

Have you considered entering the auction room but don’t know how to go about financing a big purchase, like your next property? You’re not alone. Auction finance is consistently named as a murky area that prevents buyers from taking the next step. While it’s true that financing an auction purchase is completely different to the sales market, due to the incredibly short timescale from bid to completion, bridging loans offer an easy safety net for buyers, which we’ll explain in detail here. 

What is a bridging loan?

Simply put, a bridging loan is a quick, short-term lending solution that’s designed to provide a quick turnaround of funds so the finance is there when you need it. Think of a bridging loan as a helping hand to keep things on track so you don’t miss out on an auction lot.

As the name suggests, a bridging loan provides an ideal bridge or safety net until either long-term finance can be secured or the value of the loan is paid off through the sale of assets, like the selling of a home you already own.

How a bridging loan is calculated

The amount you can borrow can range from the tens of thousands to millions. Your lender will calculate how much they can realistically lend you based on key information, which you’ll need to provide:

  • The auction lot you wish to bid on
  • The maximum amount you’d be willing to pay
  • What you’ll do with the property, for example, if it’ll be your next home or a buy-to-let
  • Your exit strategy: refinancing the purchase after the bridging loan term ends with a traditional mortgage.

As the completion of a purchase happens within such a short timeframe after auction, usually 28 days, you’ll need your lender to agree to this timeframe in order get an offer in principle if you are to complete the sale.

The terms of your bridging loan will depend upon your lender. Some loans provide monthly repayments, for example, while others ask you to pay off a lump sum at the end of the term – bridging loans are usually repaid within 12 months.

Related:

A guide to your first property auction: buyers

Property Auction Dictionary

Meet the Austin Gray auctions team

Now’s the time to talk to a lender

The property auctions sector has experienced significant growth over the past 20 years. Auctions have evolved from small scale events to a buying method of choice for homeowners and investors.

Finance options, therefore, have become flexible and straightforward with competitive interest rates that favour home buyers and investors. We’re seeing a variety of groups join us at auction, from seasoned landlords to first-time buyers and amateur investors; it really is a method for everyone.

The beauty of a bridging loan is in its flexibility. Many investors growing their portfolios prefer bridging loans as not only are they the most suitable option for auction lots, they free up your liquidity, meaning that you have the opportunity to spread your investment over several projects.

We should note that bridging loans are almost always more expensive than longer term counterparts as short-term funds put lenders at greater risk, but they are useful financial tools for the majority of buyers at auction. As long as you have a healthy exit strategy, most lenders will be happy to provide a quick bridging loan.

How we can help

We recognise that financing an auction purchase is entirely new for many clients. That’s why we’ve teamed up with three bridging loan specialists and the mortgage brokerage SPF Private Clients that can arrange an exit strategy.  

You will receive a personal service from day one with a loan that is tailored to you. You don’t need to show business plans or financial forecasts to claim, nor do you need to have a perfect credit history. Funds can be made available within a week, so expect a quick process that’s highly flexible. We would like to thank the team at Together Money for their input. 

Call us on 01273 201989 or discuss property finance with our team during a property viewing.