Bridging Loan Blog

A guide to bridging finance in auctions

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Property auctions offer you the opportunity to secure some fantastic houses at below market value.

However, if you do not have large cash reserves to call upon, how do you buy one of these bargain properties?

The answer for many people is with bridging finance.

There are two instances where bridging finance can help you purchase the dream property you have found.

Propert Auction

Your existing home is yet to sell

Many people who look to buy auction properties hope to do so with the proceeds from the sale of their existing home.

When the property market was in rude health, this was not much of a problem.

However, the property sector is going through a difficult period at the moment and it could take you several months or even years to sell your home.

This is not an option when it comes to auction properties because somebody else will more than likely bid for the house if it is available at an attractive price.

Rather than missing out, you can bid for the house and pay for it with a bridging loan.

Bridging loans can be secured against your existing property, giving you the funds you need to buy the auction property.

The loan is then repaid once you have sold your current abode.

Bridging finance is useful in such circumstances because they are quick and easy to arrange. With auction properties, you must pay the ten per cent deposit and then pay off the balance within 28 days.

Many bridging loan companies can have the funds in your bank account within 14 days of you applying, giving you ample time to pay off the balance.

In such instances, an open bridging loan is the best option, as there is not set repayment date, giving you plenty of time to sell your home and raise the funds needed to repay the loan.

It is important to note that open bridging loans come with higher interest rates and the longer it takes to repay the funds, the more you will eventually have to pay.

You can use the auction property as security

Many people who buy properties at auctions do so with the intention of renovating them and selling them on at a higher price.

Rather than using their current home as security, they use the property they are bidding for.

If you are interested in such a project, you can borrow the money needed to purchase the house plus extra to renovate it.

Again, an open bridging loan may be the best way forward, as there is no way of knowing how long it will take to sell the property once renovated.

Before you come to any decisions, it may be a good idea to seek bridging loan help to ensure you understand how bridging finance works, what interest rates you can expect to pay and whether an open or closed bridging loan is the best way forward.

A lack of cash does not need to be a barrier to you obtaining the auction property you have set your heart on.

Bridging loans are commonly used to fund auction property purchase and they can work for you too, so why not pick up the phone and start dialling bridging loan telephone numbers to see what you can get.

How Bridging Loans can Secure Auction Properties

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If you have found a property available at auction that ticks all of your boxes, then bridging finance can be used to secure it. Contrary to popular belief, not all buyers at auction have huge cash reserves to use when purchasing auction properties.

Some will use bank loans, while others do rely on their savings. However, bridging loans are one of the most common ways to finance such purchases.

What are Bridging Loans?

Bridging loans are a short-term financial solution taken out by both consumers and businesses. There are two types of bridging loan you can take out – open and closed. Open bridging loans have no set repayment date, so they give you more breathing space in terms of raising the money you need to pay it back. However, interest rates on open loans are usually higher due to the greater risk the lender is exposed to. Closed bridging loans, on the other hand, do have a set repayment date but have lower interest rates.

To learn more about how these loans work, you could seek bridging loan help from a financial adviser and ask them how the loans work and whether they are the best way forward.

How can bridging loans be used to purchase auction properties?

Bridging loans can be secured against either your existing property or the property you intend to purchase. In the first instance, you need to have a certain amount of equity in your home and how much equity you have will determine how much you can borrow. Buyers who go down this route borrow the money, pay off the balance and then repay the loan once they have sold their existing property. Many people who choose this option take out open bridging loans due to the fact that there is no set repayment date to meet. With the housing market going through a turbulent time, it could take longer than 12 months to sell a property, so having no repayment date to meet gives extra room for maneuver.

In the second scenario, you can take out a loan secured on the property you intend to buy. Many people who do this renovate the property and look to sell it on at a higher price. Again, with the housing market in the state that it is, there is no way of knowing how long it will take to sell the property, so an open bridging loan with no repayment date may be the best way forward. As bridging loans are financial products, you need to understand exactly what they are and how they work. One way forward could be to phone bridging loan telephone numbers and speak to providers themselves about their products, the interest rates they charge and how much you can secure against your current home.

It is also important to explore other forms of finance, as it may transpire that there are more suitable borrowing options for your personal circumstances.

Whichever avenue you choose, you do not have to miss out on the potential bargains available to you at property auctions. Whether you want to move house or take your first steps in the world of property development, you can secure the finance you need.