How To Get Fast Property Auction Finance

16-April-2024 10:37
in Private clients
by Sam Hodgson
How To Get Fast Property Auction Finance

Property auction finance must be quick and efficient to keep up with the fast-paced and competitive nature of property auctions.

This is why a standard mortgage usually doesn't work for auction finance. They take too long to arrange (typically a number of months), with affordability checks based on income, credit score, spending history and countless other factors.

So, what do you do when you need to complete your auction property purchase within 28 or 56 days? This is where an auction bridging loan comes in.

There are many advantages to buying a property at auction. It's a great way to get a bargain and a quicker option that allows both parties to move through the property purchase quickly.

Contracts are usually signed promptly after the deal is over, and the buyer gets to see the other offers themselves, so there is a certain level of transparency that can put the buyer at ease. 

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Auction properties can go for up to 10-30% lower than market price for a variety of reasons - in some cases, because the property needs significant work done, other times because the house has been possessed by the state and needs to be sold quickly. 

Because of these unique advantages, auction properties are often sought after by developers or landlords who can see the potential for investment and want to 'flip' them.

If you've decided that buying a house at auction could be the right step for you, you'll need to ensure you have the right funds to outbid the competition and complete your purchase. 

Is Property Auction Finance Cash-only?

You'll be relieved to know that auction properties aren't cash-only. You can use a mortgage for an auction property, provided it doesn't have any factors that would deem it unmortgageable, such as serious structural defects, rot or no kitchen or bathroom.

The problem is that most mortgages take far too long to arrange - this is where a bridging loan comes in.

Timing plays a huge role in buying a property at auction. If your bid is successful, the sale is agreed upon once the hammer falls. This can be convenient for the seller because it speeds up the process, but it doesn't give the buyer much time to raise the funds.

How soon do you have to pay for an auction property?

  • You'll need to pay a 10% deposit straight away
  • The remaining 90% is usually due within 28 days 

Having your finances in place is crucial. If you don't find the cash by the deadline, you'll lose your deposit and any money you've spent on property surveys.

In situations like this, auction finance in the form of a bridging loan can help.

Bridging loans are designed specifically for short-term funding solutions like auction properties. Bridging finance has a much quicker turnaround than mortgages (sometimes in less than a week), making it perfect for financing an auction property.

Bridging loans can also fund refurbishment costs on top of your property purchase.

Picture of city apartment for blog post titled 'How to get fast property auction finance'

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Why Use Property Auction Finance?

  • If you have your eye on a great auction property, there could be many reasons why you might need help funding your purchase.
  • It might not be feasible for you to spend most of your savings on an investment property. You may want to save your money for renovation costs, or you may simply not have the level of savings to purchase a property outright. 
  • In cases like these (and many more), it makes financial sense to take out a loan to aid your financial freedom and maximise your ROI. 

While it's possible to use a mortgage to fund your auction property purchase, it's important to note that traditional mortgage loans are generally not a go-to option for auction buyers for three main reasons:

  • You will have wasted the application costs if you apply for a mortgage before the auction date and don’t win the property you bid on. 
  • If you choose to wait until after the auction when you have won a property, the application process for a standard mortgage will take too long. This means you won’t be able to secure the money in time to complete your purchase.
  • Perhaps you have no intention of living in or renting out the property but want to sell it on to make a profit. In this scenario, you simply won't need a mortgage at all.

When using a bridging loan to finance your auction property, you can borrow a similar amount to a traditional mortgage on a short term basis. 

Terms tend to be more flexible, and the money can be raised much faster than a conventional mortgage, allowing you to move forward with a house purchase within the tight timeframes of an auction.

You can then repay your bridging loan as a lump sum later down the line, usually either by:

  • getting a standard mortgage to replace it
  • or selling (flipping) the property

Find out how we helped a recent client finance an auction property when his funding collapsed at the last minute in the video below:

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How Does Property Auction Finance Work?

Short-term auction bridging loans are available from specialist lenders on a monthly interest-only basis. They're often used to pay for your auction property (and potentially do some refurbishments to increase its value).

  • When you apply, you can get an offer in principle within 24 hours, and the funds could be in your bank account within 7-14 days
  • You can take out the bridging loan for up to 12 months (sometimes up to 24 months).
  • Since bridging loans are short-term, interest rates are calculated on a monthly basis rather than an annual percentage rate (APR). 
  • You then repay the loan when you sell the property or refinance it through a residential or buy to let mortgage.
  • You only pay interest on a bridge loan until the day you repay it.

Use our Auction Finance Calculator

Our auction finance calculator provides an approximate idea of what an auction bridging loan might cost you. But keep in mind that a specialist finance broker will be able to fine-tune your expected charges to your circumstances:

 How To Get Fast Property Auction Finance

Auction Finance Eligibility Criteria

To qualify for property auction finance, you'll need to meet two essential criteria:

  • You'll typically need to put down at least 10-20% of the loan amount. You may also be able to provide another asset or property as security. The larger your deposit, the lower the interest rates you will have to pay.
  • You will need to have a solid exit strategy to repay the loan. A lender will want to know how you will repay the loan by the end of the agreed term. In most cases, this will be through selling the property or refinancing with a traditional mortgage loan.

Before an auction finance lender approves your loan, they will want to see evidence of the value of the property you are buying, either its saleability or an agreement in principle from a mortgage lender, as proof that you have a viable exit strategy in place.

Since the loan is secured against property, the lender won't consider your income. Equally, your credit history won't affect an offer as long as any outstanding debts or adverse credit doesn't impact your ability to repay the loan. However, if you do have a bad credit rating, you may have to pay higher interest rates.

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Types of Property You Can Buy with Auction Finance

Auction finance can be used to buy many types of property, including:

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How to Apply for Auction Property Finance

When you've found a property you want to bid for, you'll put yourself in the best position to secure property auction finance by following these three simple steps:

Number 1

Get your documents in order: You'll need evidence of your deposit and exit strategy as well as a valuation report on the property you intend to buy (or other property and assets you have as security). 

Number 2

Check your credit profile: Be prepared for the lender to carry out a credit check. While bad credit is not usually a significant issue as long as your exit strategy is solid, improving your credit score and having outdated information removed could boost your chances of securing a more competitive deal. 

Number 3

Speak to a specialist auction property finance broker: Using a specialist finance broker, such as Clifton Private Finance, can give you the best chance of securing excellent terms and rates on your loan and enable you to move quickly when the time is right.

Doing this before you go to auction can help you get valuable advice on how best to approach your purchase. Not only this, but our expert knowledge in the niche and relationships with exclusive lenders can help you get the best deal on the market.

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How to Find the Best Rates on Property Auction Finance

If you need to find auction finance fast but still want to take advantage of the best rates available, we can help.

Our team of highly experienced auction finance brokers have the knowledge and experience to match your borrowing requirements and personal circumstances with the lenders offering the best deals.

We have a strong reputation for finding solutions where other brokers have failed. We work hard to get you the money you need when you need it at a rate you can afford with exceptional service.

To see what we can do for you, call us at 0117 332 5193 or book a free consultation below.

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Bridging Loan Awards 2023

Bridging Loan Awards 2022


Do you need a valuation for a bridging loan?

Yes, a valuation is typically required for a bridging loan in the UK.  

Since bridging loans are often secured against a property or other valuable assets, lenders will want to assess the market value of the property being used as security. This helps the lender determine how much deposit they want you to provide based on the value and condition of the property. 

How much can you borrow with bridging finance?

You can borrow up to £25m with bridging finance, but it’s typically capped at about 80% of the value of the property you’re using as security. 

It's important to note that different lenders have varying policies and criteria regarding the maximum loan amounts they offer for bridging finance. Some lenders have a maximum limit of over £1 million, while others may specialize in smaller loan amounts. 

Additionally, the terms and conditions of the loan, including interest rates and fees, should also be taken into consideration when determining the overall affordability of the bridging loan. 

Do you need a deposit for a bridging loan?

Yes, you typically need a 20-40% deposit for a bridging loan. 

It can be possible to get a bridging loan without a deposit (a 100% bridging loan), but you’ll need other assets in the background to secure the loan against, and more stringent criteria and higher costs could apply. 

Can I get 100% bridging finance?

Yes, it is possible to get a 100% bridging loan (also known as a 100% LTV bridging loan), but it is rare. This means that you won’t need to put down a deposit and can borrow the full value of your property.  

However, the criteria for these loans can be hard to meet, and you’ll need to provide additional assets as security for your loan. 

Interest rates and fees can also be higher to compensate. 

Does a bridging loan make you a cash buyer?

While using bridging finance doesn’t technically make you a cash-buyer, it can allow you to act like one.  

Mortgages take months to process, often leading to an ‘onward chain’ where all parties involved need to wait for funds to be transferred 

Bridging finance can usually be accessed a lot quicker than mortgages so you can bypass the onward chain, giving you an advantage over other buyers and being attractive to sellers.

What is the longest bridging loan term?

Bridging loans typically have a term of 12 months, but some lenders are willing to stretch their terms to 18 months, or even 2 –3 years depending on the case. 

Terms longer than 2 years will usually only be considered for specific cases.  

Can I use a bridging loan to pay stamp duty?

Yes, you can use a bridging loan to pay Stamp Duty.  

This amount could be covered by a bridging loan, providing you have a way to repay the additional borrowing amount to your lender.  

Are bridging loans safe?

Yes, bridging loans are safe when they’re used in the right circumstances with a solid repayment strategy. However, we recommend speaking to a qualified advisor, like our brokers at Clifton Private Finance, before you take out a product. 

The main factors to consider with bridging finance are that the full loan amount will usually need to be repaid within a year, and like a mortgage, it is secured against a property as collateral. 

This means that in the case that you aren’t able to repay your bridging loan, your property would be at risk of repossession.  

But with a watertight exit strategy, bridging finance can be an efficient way to secure property quickly. 

Can an 80 year old get a bridging loan?

Bridging loans are designed to be short-term so there’s no maximum age limit when applying for a bridging loan. This does depend on the lender, as some bridging lenders do have an upper age limit, but there are lenders on the market who offer bridging loans for borrowers aged 70 and over. 

What is the monthly interest rate on a bridging loan?

Bridging loan interest rates usually range between 0.45% - 2% per month, depending on the case and the market rate.

Unlike mortgage interest rates, bridging loan interest is calculated monthly instead of yearly.

This is because bridging loans are short-term and, in many cases, repaid within a year. Bridging loans can be arranged without early repayment penalties, so interest is calculated monthly to ensure you only pay interest on the months you have the loan for.

Do banks still do bridging loans?

Unfortunately, mainstream banks in the UK don’t offer bridging loans.

This means that if you’re looking for a bridging loan, you won’t be able to get one using a lender you’d find on the high street.

There are a variety of specialist lenders that offer bridging loans, but because these lenders are smaller and more niche, you may need a bridging broker to access them.

How much do banks charge for bridging loans?

Banks typically charge two main fees when taking out a bridging loan – arrangement fees and interest.

But there are other costs to consider such as valuation fees, broker fees and administration fees.

Costs can vary from lender to lender, and will also depend on what your bridging loan is for (e.g., residential or commercial purposes.)

Arrangement fees are what the lender charges you to take out the loan and can range between 1.5 - 3% of your overall loan. Bridging loan interest, on the other hand, is calculated monthly. This can catch borrowers out who may be expecting an Annual Percentage Rate (APR) like with a mortgage.

Can you turn a bridging loan into a mortgage?

Yes, you can convert a bridging loan to a mortgage through refinancing, and it is common among borrowers who use bridging finance to buy residential properties.

However, whether or not you’ll be able to refinance to a mortgage is dependent on your financial circumstances, the lender, and the property you’re planning to buy.

It’s important to be sure that refinancing is a viable repayment option before you take out a bridging loan on a residential property.

Is a bridging loan more expensive than a mortgage?

Yes, bridging loans are typically more expensive than mortgages.

Bridging loan interest rates can be much higher than a mortgage, and are calculated and displayed as monthly rates instead of the usual annual percentage rate (APR) that you’ll see on a mortgage.

However, bridging loans are a short-term solution, and you’ll only pay interest on the months you’ve borrowed money for – and you can repay early without any charges (for most loans).

There are many circumstances where bridging loans are an affordable option and a means to an end - for borrowers that need to finance a property purchase quickly, it may be the only option available.

How are bridging loans paid?

The two most common ways to pay a bridging loan are to sell a property or refinance to a mortgage.

You may also need to ‘service’ the loan through the term, which means paying the interest monthly. However, you can opt to ‘roll up’ your bridging interest to be repaid at the end along with the capital.

There are also other ways to repay a bridging loan, such as selling a business or even using money from an inheritance.

The method in which you pay your bridging loan can be flexible, just as long as it is clear in your application that you have a surefire way to repay your loan when the terms are up.

What is the minimum deposit for a bridging loan?

In most cases, a bridging loan will require a minimum deposit of 25%. However, the minimum can vary depending on the lender and the specific circumstances of the loan itself.

Generally, bridging loans are secured against a property or other valuable assets, and the deposit required is often expressed as a percentage of the property's value, known as the loan-to-value ratio.

In some cases, 0% deposit bridging loans are an option, but only if you have other property or assets in the background to provide additional security.

Do you pay monthly payments on a bridging loan?

No, typically, you’ll repay a bridging loan in one chunk at the end of the loan term. Bridging loans are a form of short-term finance and will usually need to be repaid within 12 months, but there can be room for flexibility.

In some cases, borrowers may be required to make monthly interest payments. This means that each month, you would pay the interest accrued on the loan amount while the principal amount remains outstanding until the end of the loan term.

But usually, the interest is "rolled up" or added to the loan balance and paid with the rest of the loan at the end of the term. This option can help protect your cashflow so you can spend it on moving costs or refurbishments, for example.

How long does it take for a bridging loan to come through?

Bridging loans can be arranged in as little as 7 working days.

However, it depends on the complexity of the bridge loan and your specific circumstances. It may also be more expensive for you to rush an urgent application through – but not impossible.

Bridging loans are a popular option for borrowers who are under time constraints, such as buying a property at auction or breaking a chain.

What is the criteria for bridging finance?

The key factors lenders tend to consider are:

Security - Bridging finance is usually secured against property or other valuable assets. Lenders will assess the value and marketability of your security.

Exit Strategy - Lenders will want to understand how you plan to repay your bridging loan. In most cases, this is selling your old property, selling the new property (flipping), or refinancing with a long-term mortgage.

Loan-to-Value (LTV) Ratio - Lenders consider the loan amount compared to the value of the property being used as security as a percentage. The LTV ratio can vary, but most lenders will have a maximum of 60-80% LTV.

Remember, the criteria for obtaining bridging finance in the UK can vary depending on the lender and your circumstances.