Why auction purchases need bridging finance
When you win a property at auction, you pay a 10% deposit immediately and must complete the purchase within 28 days (or sometimes 20 working days). A standard mortgage application typically takes four to eight weeks, which is too slow. Bridging loans can be arranged in as little as three to seven days, making them ideal for meeting auction deadlines.
Many auction properties also have characteristics that make them unsuitable for standard mortgages — they may be uninhabitable, have structural issues, or lack a kitchen or bathroom. Bridging lenders are more flexible about property condition because they focus on the property’s value after planned works rather than its current state.
Getting a bridging loan agreed in principle before the auction
The smartest approach is to arrange a bridging loan agreement in principle before you attend the auction. This means speaking to a broker, providing your financial details, and getting an indication of how much you can borrow and at what rate.
With an agreement in principle in hand, you can bid with confidence knowing that finance is available. After winning the auction, the full application and valuation can be completed quickly because much of the groundwork has already been done.
The exit strategy for auction bridging loans
Your exit strategy for an auction bridging loan will depend on what you plan to do with the property. If you are buying a property to renovate and sell, your exit strategy is the sale of the completed property. If you are buying to renovate and keep, your exit strategy is refinancing onto a standard mortgage once the property is habitable and mortgageable.
If the property is already in good condition and mortgageable, your exit strategy might simply be to arrange a standard mortgage, which you could not get in time for the auction deadline. In this case, the bridging loan buys you time to arrange the permanent financing.
Costs to budget for at auction
When buying at auction with a bridging loan, you need to budget for the 10% auction deposit payable on the day, bridging loan arrangement fees and legal costs, interest on the bridging loan for the expected duration, valuation fees, stamp duty land tax, and any renovation costs if the property needs work.
You should also build in a contingency buffer. Renovations often cost more and take longer than expected, and if your bridging loan term needs to be extended, you will pay additional interest and potentially extension fees.
Auction bridging finance with Clearview
At Clearview Mortgage Solutions, we help auction buyers arrange bridging finance quickly and efficiently. We can have an agreement in principle ready before you attend the auction and move to full approval rapidly once you’ve won a lot.
If your plan is to refinance onto a standard mortgage after renovation, we can arrange both the bridging loan and the long-term mortgage, ensuring a smooth transition. Contact us for a free consultation before your next auction.