How bridging finance can be used at property auctions

Property auctions are a popular way of purchasing residential and commercial property. If you do not pay cash, paying for the property is different to when buying property using an estate agent or direct from a buyer.

When you normally purchase a home, you will pay a deposit then complete the purchase at a future date when mortgage funds are available. If you get stuck in a house buying chain, a bridging loan can be used to complete the purchase before mortgage funds are available.

Strict timelines

At a property auction, the deadlines for paying are much stricter. Immediately after a winning bid, the property needs to be secured with a 10% deposit. Even if you eventually get a mortgage over 90% for the property, 10% is still required after bidding.

The rest of the purchase price must be paid 20 days after the auction, but some auction houses may allow 28 days.

Mortgage finance

If you need a loan to purchase either residential or commercial property at auction, you can apply for a mortgage. The loan application process usually takes longer than the 20-day auction deadline which can be a problem.

If you are buying a very cheap house or flat, it may be derelict or uninhabitable without construction work. Many mortgage lenders will not provide loans for houses classed as unfit for live in.

Auction loans

You can start the lending process sooner than the auction day in a process that involves a lender before the auction. The property you want to bid on can be valued and a loan in principle approved. As soon as you place a winning bid, the loan process can continue so that the funds are available before the 20-day deadline.

The drawback of this is when you are outbid; you must cancel the loan application but may still have to pay the valuation fee.

Bridging finance

The solution to auction property finance is a bridging loan that can be arranged much quickly than a mortgage. There are several alternative lenders who specialise in auction finance. As soon as you have placed a winning bid, contact Ascot Mortgages, who will find a bridging loan for you. There is still some legal work and a valuation report to write to finalise the loan application. A lender with knowledge of property auctions will make sure that the loan funds are available in time to pay off the balance owing on the property.

Bridging loans can be provided for individuals who intend to make the home their main residence, or for investors who either want to buy-to-let or improve the property to sell it on for a profit.

Bridging loans are often used for property bought at auction before more long-term finance is available. They can be used to purchase and upgrade uninhabitable property so that it qualifies for a standard mortgage.

Provided you have sorted out your finances, whether you’re employed or self-employed, auctions can be a good way to purchase property. Talk to Ascot Mortgages about this and all the other ways to finance property deals.