Auction Bridging Loans
Buying a property at auction can be hugely exciting - the auction room atmosphere, the adrenaline pumping, and the thrill of the purchase as the hammer goes down - but it also involves a lot of planning and preparation, especially when it comes to getting your finance in place to secure the deal.
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What's in this article?
In this article we’ll answer some of the most common questions we get asked about auction bridging loans, from what the term actually means to how much you should expect to pay.
If you have any other questions about auction finance, or other forms of bridging loan, simply get in touch and we’ll do our very best to help you make your property dreams a reality.
What are auction bridging loans?
Auction bridging loans are one type of bridging loan, designed specifically for when you are making something, normally a property or land, at auction.
They are a short-term form of finance, usually taken over 3-24 months although sometimes up to 36 months. The idea of auction finance is to provide a stop gap until you are able to either sell on the property, get a traditional mortgage in place, or sell another asset to repay the loan.
Are they any different to a regular bridging loan?
An auction bridging loan is very similar in most ways to a standard bridging loan, the only difference you might find is that sometimes auction finance applications will be processed more quickly to allow for the tight timescales involved in buying a property at auction.
How much can I borrow?
How long is a piece of string? It’s an important question, but it really does depend on a lot of different factors, so it would be impossible to give a definitive answer here. In general, auction bridging loans can be made from thousands up to millions of pounds, but lenders will be looking at a range of factors to determine how much they are prepared to lend you, including, but not limited to:
- How much deposit you have
- What exactly you’re buying
- The value of the land or property you’re buying
- The viability of your exit strategy
- Your credit history
How quickly can I get an auction bridging loan?
Very! The appeal of auction bridging loans, and bridging loans in general, is that they are much quicker to arrange than standard mortgages, meaning you can respond quickly and get cash in the bank in a very short timescale.
Most auction finance lenders say they can get a loan secured for you and funds released with two weeks, although depending on the complexity of your circumstances and your deadlines, it can often be done even more quickly than this, sometimes within days. Many lenders also offer fast track application processes, so this could be appropriate for you buying at auction where you need a really quick bridging loan.
Will I need a deposit?
Yes, when buying at auction you’ll need to hand over a 10% cash deposit as soon as you agree the sale, so you’ll need to be prepared with this on the day of the auction. You may need a further deposit to secure your auction finance and many lenders will impose LTV limits. However, if you have other assets that you can secure against the loan in lieu of a deposit you may be able to get a loan for up to 100% of the property value.
Can I bid if I don’t have finance secured?
Yes, but you will need to have at least the 10% deposit to pay on the day and be confident that you’re in a strong position to get finance in place as when the hammer falls you are entering into a legally binding contract. With most auctions you will have 28 days to pay the remainder of the money, so this should be time to get auction finance in place as long as there are no problems along the way, but do double check this as sometimes this payment window can vary in length.
Do auction finance lenders do credit checks?
Yes, as part of your auction finance application assessment your lender will carry out checks into your credit history. This is one way for lenders to make a judgement on how high risk you are as a borrower - bad credit issues in the past will be a red flag and may lead to your application being declined.
You can still get auction finance with bad credit, but you may need to find a more specialist lender and be prepared to pay a higher rate of interest.
How do I get an auction bridging loan?
Your best first step if you are looking to secure a bridging loan for an auction is to speak to a specialist broker. A broker who works specifically within the auction finance market will have a good experience of the options available to you and be able to identify the best lender and product for you based on your financial circumstances and needs.
There will usually be a broker fee to pay, but this should be a worthwhile investment when you offset it against the time, stress and money that an auction loan broker can save you.
The other important thing you’ll need to do to get an auction bridging loan is to have a sound exit strategy in place. This is your plan for how you will be repaying your loan at the end of the term, and is the security and reassurance that a lender will need to convince them that they will get their money back.
An exit strategy could be refurbishing and reselling the property, or perhaps just getting a regular mortgage in place. Your broker can look at it for you before you make your application.
Conclusion
We’ve answered a lot of questions here, but that doesn’t mean you might not still have things you want to know.
Get in touch to find out more about how auction bridging loans might work for you and our team of experts will be happy to help.
Ready to talk? Speak to an expert today: 0800 077 8980
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