Why auction purchases need bridging finance
Win a lot at auction and you hand over a 10% deposit there and then, with completion due inside 28 days (sometimes 20 working days). A standard mortgage application generally takes four to eight weeks, far too slow for that window. A bridging loan can be arranged in as little as three to seven days, which is what makes it such a good match for auction deadlines.
Plenty of auction properties also carry features that rule out a standard mortgage. They might be uninhabitable, have structural problems, or be missing a kitchen or bathroom. Bridging lenders take a more relaxed view of condition, because they judge the property on what it will be worth once the planned work is done rather than how it stands today.
Getting a bridging loan agreed in principle before the auction
The smart move is to line up a bridging loan agreement in principle before you ever set foot in the auction room. You speak to a broker, share your financial details, and come away with an indication of how much you can borrow and at what rate.
With that agreement in principle behind you, you can bid knowing the finance is there. Once you win, the full application and valuation move quickly, because most of the groundwork is already done.
The exit strategy for auction bridging loans
The exit strategy for an auction bridging loan follows whatever you intend to do with the property. Buying to renovate and sell? Your exit is the sale of the finished property. Buying to renovate and keep? Your exit is refinancing onto a standard mortgage once the place is habitable and mortgageable.
If the property is already in good shape and mortgageable, your exit could just be arranging a standard mortgage that you could not have got sorted in time for the auction deadline. Here the bridging loan is simply buying you the weeks you need to put permanent finance in place.
Costs to budget for at auction
Buying at auction with a bridging loan means budgeting for several things at once: the 10% deposit due on the day, the loan’s arrangement fees and legal costs, the interest for however long you expect to hold it, valuation fees, stamp duty land tax, and any renovation costs if the property needs work.
Leave yourself a contingency buffer as well. Renovations have a habit of costing more and taking longer than planned, and if you end up extending the bridging term you will pay extra interest and possibly an extension fee on top.
Auction bridging finance with Clearview
At Clearview Mortgage Solutions we help auction buyers get bridging finance in place quickly and without fuss. We can have an agreement in principle ready before you attend, then move to full approval fast once you have won your lot.
If the plan is to refinance onto a standard mortgage once the work is finished, we can arrange the bridging loan and the longer-term mortgage together so the handover is smooth. Contact us for a free consultation before your next auction.