Buying a property at auction is a pretty attractive for both homeowners and property investors as they can snap up a great deal at a knockdown price. However, the only drawback of buying auction property is you are supposed to make the full payment of the property within 28 days, which is too short period to arrange a traditional mortgage. Hence, buyers must look for an alternative way that enables them to raise a large sum of money in a relatively short period. More importantly, your finances should be arranged in advanced.
Most auction participants turn to bridging finance as they are quick and easy to arrange compared to other forms of loan. Bridging loans UK can be used to purchase all types of properties in all types of conditions. It can be truly useful when you a see a bargain property at auction and you want to ensure you have the necessary funds available as soon as the hammer falls and you win the bid.
Bridging Loan for Auction Property
Bridging loans are the short-term loans that bridge the gap from the auction day to until your property is sold or refinanced with a long-term mortgage loan. Within a few days a bridging loan can be arranged and the buyer can secure the property.
Why Arranging Bridging Finance for Auction is Necessary?
As we mentioned above, the purchase of the auction property must be completed in 4 weeks. Moreover, as soon as you win the bid, you are supposed to pay a 10% deposit, which is non-refundable. That means it becomes imperative to arrange the rest of the funds in the fastest possible time to complete the property purchase. If you fail to arrange the necessary funds, you may lose your 10% deposit as well.
Regular mortgage is not an option for buying an auction property. As we know, the mortgage takes weeks to process, which means you are less likely to raise funds within 28 days. If you think you could pay in cash, these properties will go in at least six figures, and that sum of money isn’t simply available to most homeowners or property developers.
The only feasible option is to go for the bridging finance as it fills the gap. Bridging loans are faster and more flexible than a traditional mortgage, which enables you to secure a great property deal even when your cash flow is not stable.
Step by Step Process of Getting Bridging Loan for Auction Property
Let’s go through some basic steps of how to use the bridging loan to buy an auction property.
Step #1 First, find the right auction property
Nowadays, it is very easy to find property auctions all around the UK. The auctions may involve different types of properties, including both residential and commercial. Moreover, every property investor is different. Some may be looking for refurbished properties and buy-to-let properties, while others may be interested in a ready-to-move property. So, before you participate in the auction, make sure it is on the property you are interested in.
Step #2 Do your research well
When properties are listed in the auction, they have some sort of viewing or open day where you can visit the property and examine its condition. If possible, take a real estate developer along with you who can help you assess the structural and physical condition of the property. Also, inspect the surrounding area and other similar properties in the area to know the actual value of the property. The solicitors of the auction will also have a document of the property, so read it carefully to make sure everything is in place. This way you will be able to unveil all the secrets of the property.
Step #3 Know your purpose
Why you want to purchase the property? What are your end goals? Does the property require additional work to be carried out? If so, is it heavy structural work or light refurbishment task? Answering these questions will help you understand whether you should invest in the property or not. When planning for the bridging loan, getting the details of what you want to do with the property will help lenders assess your application better.
Step #4 Determine your maximum bid
This may sound obvious, but many buyers tend to bid higher than they could afford in the heat of the moment. You should always be mindful about what you are bidding and when to stop. Moreover, don’t get lured by the guide price. The guide price is just to attract prospective buyers and the actual selling price is often higher. Therefore, find out what is the highest amount you are willing to pay and how much funds you can raise through bridging finance. If you end up bidding more, there is no guarantee that the bridging lender will be able to provide 100% financing.
Step #5 Exit strategy to repay the bridging loan
Before your bridging loan is approved, every lender wants to know about how you are going to repay the loan. So, with the short-term bridging loan, what would be your exit strategy? Will you refurbish the property and sell it for a higher price? Will you refinance into a long-term loan after the refurbishment work is complete? Or, are you waiting for your current home to get sold? Whatever your exit plans are, the lender will need to know and must be satisfied with your repayment plan.
Bridging loans are pretty straightforward. They are more suitable for auction property purchase as they are quick and easy to put in place. Although it is flexible to take out the bridging loan for an auction property, it is highly recommended that you get an estimation of the value of the property and have your finance ready before you attend the auction. At BridgingFinance4U, we can help you raise from £5,000 to £5 million. As the market leader, we can offer bespoke bridging finance solutions at the best rate, so you complete your auction property purchase smoothly. Click to Blog