Auction Bridging Finance

Key Takeaways

• Auction purchases often require completion within 28 days, making it difficult for traditional mortgages to be approved in time. Bridging loans offer a fast and flexible solution.
• Also, many auction properties are considered unmortgageable due to their condition. Bridging finance can secure the property, fund necessary renovations, and pave the way for mortgage eligibility.
• Bridging Finance is an independent brokerage that provides expert advice and tailored solutions for your auction bridging loan needs.

What is Auction Bridging Finance?

Auction bridging finance is a short-term loan designed to help buyers secure properties quickly, particularly in auction scenarios.

When you win a bid at an auction, you typically have just 28 days to complete the purchase. This tight timeframe often makes it impossible to secure a traditional mortgage in time.

Bridging loans step in to provide the required funds immediately, allowing you to purchase the property outright and then repay the loan once your mortgage is approved or the property is sold.

To see if you’d be eligible for bridging finance, try our calculator below. If you don’t own additional property to the one you’re purchasing you may not reach the required loan-to-value, however, do get in touch if you’d like to ask us for advice.

How Does Auction Bridging Finance Work?

Step-by-Step Process

1. Assess Your Requirements Work with a specialist bridging finance broker to evaluate your needs, calculate loan amounts, and outline an exit strategy (e.g., refinancing or selling the property).
2. Decision in Principle Obtain a decision in principle from your lender, typically within 24-48 hours. This strengthens your position as a buyer and provides confidence to proceed.
3. Property Valuation The lender arranges a valuation of the auction property. This determines the maximum loan-to-value (LTV) ratio they can offer.
4. Loan Approval Submit your application with the broker’s assistance. Once approved, funds are released quickly—sometimes in just a few days.
5. Completion Use the funds to complete the auction purchase within the required timeframe.
6. Exit Strategy Execution Repay the bridging loan by refinancing to a traditional mortgage or selling the property.

Why Choose a Bridging Loan for Auctions?

1. Speed of Completion

Auction houses demand quick completion times, usually within 28 days. Traditional mortgages can take months to process, putting your purchase at risk. A bridging loan can be arranged in as little as 72 hours, ensuring you meet auction deadlines.

2. Purchasing Unmortgageable Properties

Many auction properties are deemed unmortgageable by traditional lenders due to their poor condition or lack of key facilities, such as a functional kitchen or bathroom. Bridging finance allows you to:

• Secure the property quickly.
• Fund essential renovations to meet mortgage standards.
• Transition to a standard mortgage or sell the property after refurbishment.

3. Breaking Property Chains

With a bridging loan, you don’t have to wait to sell your current property before buying at auction. This flexibility can give you a competitive edge in a fast-moving auction market.

Costs of Auction Bridging Finance

Understanding the costs involved is crucial for planning:

• Interest Rates: Typically range from 0.68% to 1% per month, depending on your LTV.
• Facility Fee: Usually 1.5% to 2% of the loan amount.
• Valuation Fees: Approximately £950 but may vary based on property value.
• Legal Fees: Around £1,000 for a property worth £250,000.
• Exit Fees: Bridging Finance avoids recommending products with exit fees, ensuring greater flexibility.
• Redemption Fees: Small administrative charges (£100-£150) for removing the legal charge on the property.

Most bridging loans roll up interest into the loan amount, freeing you from monthly payments and allowing you to focus on renovations or other priorities.

Who Can Benefit from Auction Bridging Finance?

Property Investors

Investors often use bridging loans to buy undervalued properties at auction, renovate them, and sell for a profit or refinance onto a buy-to-let mortgage.

Homebuyers

If you’re looking to secure your dream home at auction but face delays with selling your current property, a bridging loan can provide the interim funding you need.

Developers

Bridging finance is ideal for developers who need quick access to capital for auction purchases and subsequent renovations.

Eligibility Criteria

Eligibility for a bridging loan is primarily based on the loan-to-value ratio and the strength of your exit strategy. Key factors include:

• Loan-to-Value Ratio: Maximum LTV is typically 80%, combining the auction property value and any additional assets used as security.
• Exit Strategy: Clear plans to repay the loan, such as refinancing with a mortgage or selling the property.
• Property Value: The property must be professionally valued to determine the loan amount.

Unlike traditional mortgages, income and credit scores play a minor role in bridging finance eligibility.

Benefits of Using Bridging Finance for Auctions

• Speed: Funds can be available in as little as 72 hours.
• Flexibility: Suitable for unmortgageable properties and complex situations.
• High Approval Rates: Broad eligibility criteria compared to traditional loans.
• Tailored Solutions: Brokers like Bridging Finance provide bespoke advice and support, ensuring the best outcome for your situation.

FAQs

How Quickly Can I Get a Bridging Loan?

Funds can be arranged in as little as 72 hours, although the average timeframe is 3-6 weeks.

What Happens if I Can’t Repay My Loan?

If you fail to repay, the lender may repossess the property. A well-planned exit strategy is essential to avoid this.

Are Bridging Loans Expensive?

While bridging loans have higher interest rates than traditional mortgages, their short-term nature and flexibility often make them a cost-effective solution for auction purchases.

Can I Use a Bridging Loan for Renovations?

Yes, bridging loans are often used to fund renovations, especially for properties that need work to become mortgage-eligible.

Do I Need a Broker?

Using a broker like Bridging Finance is highly recommended. They simplify the process, provide access to exclusive deals, and ensure your application is handled efficiently.

Why Choose Bridging Finance?

At Bridging Finance, we specialise in helping clients secure tailored bridging loans for auction purchases. Our team offers expert advice, competitive rates, and seamless service—from your initial enquiry to loan repayment. Best of all, our services are fee-free for borrowers.

Ready to explore your auction bridging finance options? Contact us today to discuss your needs and secure your property purchase with confidence.