Short-term, low interest auction finance
- The auction finance can be pre-agreed. You can have an agreement in principle from a bridging lender so that when the bid is won on auction day, you would quickly move it to the next stage.
- A bridging loan is not always based on income or credit i.e. unlike a mortgage the lender do not require to see employment history or business plans depending on the exit route, which makes them that bit quicker.
- The specialist lenders for bridging will consider certain properties bought at auction that high street lenders may not consider such as certain non-standard construction types. They will also consider properties that need refurbishing or ones that may not have fully functioning bathrooms or kitchen. This will allow you to purchase a property via a bridging loan, carry out the work and then either refinance or sell the property.
- The bridging loan lender will also consider properties that will require heavy refurbishment or conversion.
- These loans are available between 3-18 months.
- You can usually borrow up to 70% loan to value of the property (i.e. size of the loan compared to the value of the property).
- Ensure that finance is available to you.
- Review the full lot details for any conditions set out.
- Properties purchased at auction sometimes need work doing to them so it is advisable to view the property with a builder, architect, surveyor to look over the work and costs involved.
- Study the lot legal pack which will contain title deeds, local authority search and property information.
- Carry out any legal search to see if there are any restrictive covenants, this may involve carrying further searches and if you don’t buy or win the property, the cost of which may be redundant.
Many purchasers do not have the amount of cash available to buy a property outright. This brings Bridging Finance into the buying journey. Bridging Finance can either be arranged “in principle” prior to the auction or shortly after your bid has been successful. This would be well within the time frame required for completion and normally much quicker than mortgage finance which is due to the requirements of checking credit and affordability etc which generally always takes longer to arrange.
Bridging finance can also be used when a property is deemed to be not suitable for a mortgage. This is normally when a property is without a kitchen, bathroom or both or has other defects where a bridging loan company will accept a client but a mortgage company will not.
Bridging Finance can be arranged on a new build property which has yet to be finished or on a renovation type project which for whatever reason has not come to fruition. Neither of these examples are generally allowable for mortgage finance but because bridging is simply based on the value of the security asset, provided the valuation is acceptable, then the bridging loan lender will usually lend up to their maximum LTV (Loan to Valuation) i.e. size of the loan compared with the value of the security and will do this quickly and without the fuss of a mortgage.
Land or commercial units are much easier and quickly financed by using a bridging loan rather than by any other finance type.
The bridging finance arranged at auction is a short-term solution and once the requirement for the bridging finance is resolved, then the bridging loan is either repaid by selling the property, by refinancing the property or paying off the bridging loan with available cash.