Using a bridging loan is one of the most common ways of financing for auction purchases. Buying property at an auction comes with a big obstacle for most people; the tight time frames for various payments i.e. you are called for to pay a 10% down payment at the time of a successful auction bid at which time you enter into a lawfully binding contract which mentions that you should pay the balance of 90% generally within the next 28 days – some contracts allow for a relatively cheap extension to this, so do read the small print or speak with your solicitor. As even a quick mortgage (is their such a thing?) usually takes longer than a month to arrange, buyers are left with two main options: cash or bridging finance. Simply because these methods are both much quicker and also less onerous in terms of requirements than a regular mortgage. Interest rates for auction finance start at around 0.49% per month.
Many purchasers would not have the quantity of money offered to buy a property outright, particularly in certain parts of the country where property prices have increased considerably, this is where Bridging Finance is important. Bridging Finance can either be arranged prior to the auction – both valuation carried out and most legal work complete – or after the auction and completed soon after the bid, typically within 7-14 days. This would certainly be well within the duration required by the auction house and much quicker compared to a mortgage.
One more added advantage of using bridging finance is that it can be utilised when a property is deemed to be not suitable for a mortgage. This is usually when a property is without a kitchen area, shower room or both or has an additional problem be it damp, of a structural nature, generally uninhabitable, short lease, flying freehold, planning or building control related. Bridging Finance can be arranged for new build properties or properties that require a light or heavy refurbishment project. Neither of these examples are typically allowed for a regular mortgage however because bridging is simply based on the value of the security, as long as the valuation report is positive then a bridging application is normally a straight forward process.
Bridging finance arranged for properties bought at auction is short term finance, Belgravia Property Finance source this type of finance from the whole market, most bridging lenders provide this type of finance but if certainty of funding is required it is important to know which ones will deliver on time. Short term auction finance is either paid off by selling the property or refinancing the property on to a term loan ie. mortgage – Buy To Let, Commercial or other term loan. Short term can mean as little as 1 day or as long as 24-36 months, an average duration is 8-12 months.