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.