Bridging Loan For Auction Property Purchase In The UK

Auction property purchases often happen unexpectedly, with unknown prices and short payment deadlines. This means that traditional sources of funding are likely not fit for these kinds of purchases. 

Thankfully bridging loans offer an array of benefits which we will discuss, however, they often come at an elevated cost.

In this blog, we'll uncover everything you need to know, before purchasing property with a bridge loan.

Can You Get a Bridging Loan for Auction Property?

In short, yes, you can obtain a bridging loan for auction property purchases in the UK.

Bridging loans are specifically designed to provide short-term financing, making them ideal for the quick turnaround required in auction scenarios. These loans offer the flexibility to secure funds rapidly, allowing you to meet the tight deadlines often associated with auction properties.

So What is an Auction Bridging Loan?

An auction bridging finance is a type of short-term finance specifically tailored for purchasing properties at auction. These loans are designed to bridge the gap between the auction purchase and securing long-term financing or selling the property. They provide the necessary funds quickly, enabling buyers to complete the transaction within the typically short timeframe required by most auction houses.

How Do Auction Bridging Loans Work?

Once a property is won at auction, the buyer usually has 28 days to complete the purchase. The bridging loan covers this period, allowing the buyer to secure the property without delay. The loan is then repaid either through refinancing with a traditional mortgage, selling the property, or using other available funds.

The process involves a valuation of the property, due diligence, and the agreement of terms, all of which can be expedited with the assistance of a knowledgeable broker.

How Much Does a Bridging Loan for Auction Property Cost?

Most of the time, auction bridging finance has the same costs and fees as bridging loans for other purposes, some of the common bridging loan fees you can expect to pay are:

Arrangement Fees

• Lender Arrangement Fee: Usually 1% to 2% of the loan amount, charged by the lender for setting up the loan.

Valuation Fees

• Property Valuation: Costs can vary but generally range from £300 to £1,500, depending on the property's value and location.

Legal Fees

• Solicitor Fees: Both your own and the lender's legal fees, which can range from £500 to £2,000.

Exit Fees

• Early Repayment Charges: Some lenders may charge an exit fee, typically around 1% of the loan amount, if you repay the loan early.

Administration Fees

• Additional Costs: Some lenders may charge for administrative tasks, which can add a few hundred pounds to the overall cost.
  
  

What Deposit Do You Need?

When purchasing a property at auction, you typically need to provide a bridging loan deposit of around 10% of the property's purchase price on the day of the auction. This deposit is required immediately after winning the bid to secure the property.

Lenders usually require a deposit or equity contribution, which can range from 20% to 30% of the property's value. This ensures that the lender has sufficient security for the loan.

It's essential to have these funds readily available to meet both the auction house's and the lender's requirements promptly.

What Interest Rates Are Associated With Auction Bridging Loans?

Auction bridging loans don't tend to carry much higher rates than regular bridging loans, however, some lenders may charge more due to the shorter turnaround time required. One way to alleviate this issue is to secure an agreement in principle

Typical bridge loan interest rates are significantly higher than traditional mortgages, usually from 0.4% to 2% per month.

Due to the nature of the loan, the rates are higher, however, as a result, they come with their own list of benefits. One is their repayment options.

Borrowers can choose between monthly payments, rolled-up interest retained interest. Calculating the difference between rolled-up interest and monthly payments is made simple with a bridging loan calculator. 

Do I Need An Agreement In Principle Before Purchasing Auction Property With Bridging Finance?

Some of the main reasons why having an agreement in principle prior to securing property at action include:

• Increased Credibility: Having a bridging loan agreement in principle demonstrates to auctioneers and sellers that you are a serious buyer with secured financing.
  
  
• Faster Completion: It speeds up the process, allowing you to complete the purchase within the tight deadlines typically associated with auction properties.
  
  
• Clear Budget: Knowing the amount you are pre-approved for helps you set a realistic budget and bid confidently.
  
  
• Competitive Edge: It gives you an advantage over other bidders who may not have their financing arranged, increasing your chances of winning the auction.
  
  
• Reduced Stress: Having pre-approved finance reduces the stress and uncertainty of securing funds post-auction.
  
  
• Better Terms: An agreement in principle can help you negotiate better terms and conditions with the lender, as you have already demonstrated your creditworthiness.
  
  
• Due Diligence: It allows you to focus on due diligence and property inspections, knowing that your financing is already in place.
  
  

Types of Property You Can Buy Using Auction Bridging Finance:

Residential Properties

• Houses: Ideal for buy-to-let investors or those looking to renovate and sell.
• Flats and Apartments: Suitable for both personal use and rental income.
• Multi-Unit Buildings: Great for developers looking to convert into multiple flats or apartments.

Commercial Properties

• Retail Units: Perfect for businesses looking to establish a physical presence.
• Office Buildings: Suitable for companies needing office space or for conversion into residential units.
• Warehouses: Ideal for storage, distribution centres, or conversion into commercial spaces.

Mixed-Use Properties

• Shops with Flats Above: Excellent for generating dual income streams from both commercial and residential tenants.
• Live-Work Units: Combining residential and commercial spaces, ideal for small business owners.

Development Opportunities

• Land: For developers interested in building new residential or commercial properties.
• Derelict Buildings: Offering potential for significant value addition through renovation and redevelopment.
• Unfinished Projects: Properties that require completion, providing opportunities for developers to add value.

Specialised Properties

• Hotels and Guesthouses: Suitable for those looking to enter the hospitality industry.
• Care Homes: For investors interested in the healthcare sector.
• Industrial Units: Ideal for manufacturing or heavy industry use.

Using a bridging loan, you can quickly secure these diverse property types at auction, enabling you to capitalise on various investment opportunities.

Should You Use a Broker for an Auction Bridging Loan?

Access to Multiple Lenders

Brokers have relationships with a wide range of lenders, including those you may not be able to reach on your own, enabling you to increase your chances of finding the best bridging loan rates and terms.

Expert Advice

Brokers are knowledgeable about the lending market and can provide expert advice tailored to your specific financial situation and needs. They can help you understand the nuances of different loan products and guide you towards the most suitable option.

Time-Saving

The application process for a bridging loan can be complex and time-consuming. A broker can handle much of the paperwork and communication with lenders, saving you valuable time and effort.

Negotiating Power

Brokers often have strong relationships with lenders and can negotiate better terms on your behalf, potentially securing lower interest rates or more favourable repayment conditions.

Streamlined Process

Brokers can help streamline the application process by ensuring that you provide all necessary information and meet the lender's requirements. This can reduce the likelihood of delays or complications.

Tailored Solutions

A broker can assess your unique financial situation and recommend loan products that are specifically tailored to your needs, whether you are purchasing residential or commercial property.

Support Throughout the Process

Brokers provide ongoing support throughout the entire loan process, from initial application to final approval, ensuring that you have professional guidance every step of the way.

Finance Nation

If you want to dive straight into exploring bridging finance options, you're already in the right place.

Finance Nation is a finance broker that understands the challenges faced by people seeking the most time and cost-effective solutions, and we're here to help.

With our cutting-edge Fintech platform, we ensure seamless access to tailored solutions that suit your needs.

With access to lending products you might not find elsewhere, we'll identify the best deals for you and keep things moving until the funds are where they need to be.

Contact us now and book a call so we can work out your next best step forward!