Auction Finance Bridging Loans
Auction finance loans are used for a range of uses such as land, semi-commercial and commercial purchases as well as pre-purchased homes. When a property requires refurbishment then you may not be able to get a mortgage therefore bridging loans are the perfect option. We can source auction finance loans for both personal and commercial clients.
Auction loans are mainly used to purchase property at auction when short term finance is required when buying a property. The way that auction finance works is usually quick and many lenders are able to get finance in place within days.
When you are looking to get auction finance in place for your new auction purchase it is paramount that you have as much information to hand.
Bridging Loans for Auction Purchases
Bridging loans are great for accessing large amounts of cash quickly. They are used mainly for property purchases whilst waiting for an existing property to complete. Bridging finance is popular with property developers who require commercial finance for development loans and commercial properties. Other uses can be home renovations and funding for restoration work.
Whilst most bridging loans for auction purchases are for personal use, they are popular with commercial clients. Funding buy-to-let or BTL properties are popular for commercial clients. These can be both first-time investors or seasoned buy to let investors.
Auction bridging loans are usually offered between 1 and 24 months. The loan is repayable in monthly instalments or at the end of the term (rolled up). When applying for a bridging loan it is usually much simpler than usual finance applications.
The application stage is usually around 2 to 10 days. Credit checks are not usually required as long as there is suitable security for the lender.
How do auction loans work?
Property auction finance loans are usually put in place before you attend an auction house so that you have access to cash to complete your desired purchase. If you take out a bridging loan then you must ensure you have an appropriate exit route as they are not suitable for long term lending.
You will be required to pay the bridging auction loan off in full before re-financing. Below is some information on how auction finance works:
Research your intended investment:
When looking into auction investments it is important that you plan and research your auction house that you intend to bid at. If you are the successful bid then you must be sure that everything is in place for a smooth transaction. There are many auction houses around the UK of which offer in-person bidding and online bidding.
Once you have decided and are happy on the asset then you can proceed to get provisional acceptance from a lender. By using a specialist bridging finance broker such as The Bridging Loan Company we will ensure your lender is authorised and regulated by the financial conduct authority or FCA.
This next stage of the process of securing a bridging finance loan is where you will get provisional approval from a specialist bridging loan lender. Many lenders specialise in auction finance loans and will be able to help you along the way.
They will ask for a range of personal documents and focus highly on the security you can offer for the loan. If you are new to property finance at auctions then they may complete more in-depth checks over a seasoned developer. Sometimes credit checks may be required if the security you are providing for the loan is questionable.
Once you have provisional acceptance for your auction loan then you will get conditional approval from the chosen lender. At this stage, you will often be able to have an agreement in principle with set terms that you must adhere to. The payable deposit on the day and loan to value will be also be agreed.
Win the auction:
Now you have attended the auction and have hopefully won the property or asset, then you will need to get the balance paid before 28 days. The lender that you have chosen will pay out the rest of the loan once everything is finalised. It helps if they are registered in England and Wales to speed up releasing funds for purchases at auction.
What happens now?
Ensuring that you get a smooth completion is paramount to the auction loan completing with no issues. You must be in constant contact with the bridging finance lender, solicitors and anyone else involved. In addition, you will find that by ensuring everyone is on top of their part really does speed up the process.
Advantages of auction bridging finance:
Bridging loans for auctions are the best way to finance purchases of high value. They can be riskier than other finance but there are still many advantages as below:
- Quick application and payout processes make them ideal for access to quick cash
- You can roll up the loan and pay at the end of the term
- The bridging market is competitive so you can access some fantastic low rates
- You can usually get the property for less than market value at auctions
- You can get loans for a property that are not possible to mortgage
- Perfect for development loans
Disadvantages of auction bridging finance:
- They are usually expensive compared to standard mortgages
- If any issues arise they can be costly such as overdue developments
- Failure to repay the full loan on completion may result in repossession and high costs
Interest Rates for Auction Bridging Finance
Interest rates for bridge loans vary with many factors involved. We have access to over 200 lenders in the UK, our bridging finance lenders all provide finance for auction loans. Usually, you would be looking at interest rates from 0.37% right through to 1.6% over up to 2 years term. You may be subject to additional charges such as valuation fees, lender administration costs and a broker fee.
Things to consider with an auction house purchase
As with any purchase it is essential that you do your research and are sure that you have suitable means to finance the auction purchase. If you have existing mortgages then you may need to let your existing mortgage provider that you are taking out a bridging loan for an auction purchase.
You need to be aware that auction bridging loans serve a very specific purpose and you have to be knowledgeable and proficient in what you are taking on. It is recommended that you have a clear exit strategy and route on completion of your bridge loan.
When you re-finance your bridge loan, normally you would take out a mortgage however there are other routes such as selling the property of asset.
You will be given a choice of repayment options for your new auction purchase. Either monthly repayments of the loan amount including interest or everything rolled up for payment at the end of the term. Sometimes it may be that you require another bridge so therefore you will need to re bridge and sign a new agreement. The APR rates may differ at this point.
We have seen many cases where clients have finance in place for an auction purchase but they do not win the bidding. In these cases it can be frustrating and you may be required to re apply for another property listed as a lot on another auction.
I want to get an auction loan, what are my next steps?
OK so you are looking to get a bridge loan for an auction purchase. Great news. Here at The Bridging Loan Company we are ready to take you enquiry and help you at every stage of your application.
We take the stress out of bridging loans. Contact us today using the form below or give us a call to discuss.