Buying a property in an auction is increasingly popular with £5.5 billion of transactions last year.
More than 28,000 properties were auctioned last year – a 10% increase on 2023. It proves auctions are not just for those who appear on Homes under the Hammer!
Buying at an auction is not something you can easily do with a mortgage. That’s why many choose buying an auction property with a bridging loan.
A bridging loan can be used no matter what property you’re buying. They are useful for commercial, residential or mixed-use buildings and because they are short-term finance options, they can give access to funds more quickly than traditional funding which makes them perfect when you need to access funds quickly.
Here, we’ll look at how to prepare and buy an auction property and how it works with a bridging loan.
How bridging loans work with auction properties
The flexibility and quick approval process as well as the quick access to funds makes bridging loans the perfect solution.
When buying an auction property with a bridging loan you need to be prepared to ensure everything goes through smoothly. Don’t just turn up and put in a bid without doing some groundwork first, remember, when the hammer goes down, you enter a legal process to buy that property. Buying on a whim could cost you in the long run!
What you need to know
Although there is still a legal process when buying an auction property, it’s quicker than buying through an estate agent. That’s just one reason why vendors sell their property in auctions. It also guarantees a sale, which some sellers require, especially if they have inherited the property and don’t want to live there.
Usually auction properties are sold within 28 days. As mortgage lenders require a valuation, searches and other legal requirements, it’s often not possible to arrange a mortgage for an auction property. For example, they are not keen on loaning money for properties that are uninhabitable. So, what else do you need to know?
Be prepared
The main aspect is to ensure you research potential properties. Make sure you set a budget and have finance in place before attending an auction. This is where bridging loan providers excel over mortgage lenders. Bridging loan lenders understand investment properties and are more likely to lend money on those that mortgage lenders would turn down.
Application process
You will need to apply for a loan that covers the purchase price of the property along with other associated costs, such as legal expenses and auction fees. Make sure you have made an application before the auction to speed up the process.
Valuation and legal processes
Your bridging loan lender will carry out checks both for legal and valuation purposes. While lenders are usually more flexible and mortgage lenders, they don’t throw money away. They will assess its suitability as collateral for the loan. Once they are happy, they will approve the loan and release the funds.
Auction day
On the day the property goes to auction, you must pay a deposit immediately if you are successful. It’s usually around 10% of the purchase price, you will also sign a contract saying you’re buying the property. That’s another good reason to have your bridging loan in place prior to the auction.
Completion
If you’ve bought a house, you’ll know completion can take months. That’s not the case with auction properties, you usually have around 28 days to complete.
Repayment
Once you’ve bought the property, then you’ll need to start work on your exit strategy. You will have already decided what that is when applying. It could be repaying the loan and interest once you receive a mortgage. Or, it could be the sale of the property once redeveloped. Here’s all you need to know about bridging loan exit strategies.
Ready to buy an auction property?
If you are thinking of buying an auction property with a bridging loan but aren’t sure about the steps you need to take, contact our friendly team today.
With over 20 years in financial experience, our friendly team are here to help.
