When it comes to buying a property at auction, they are multiple ways of doing this and auction bridging loans is one.
Bridging loans, which can also be known as a swing loan or caveat loan, are types of short-term loans that are usually taken out for several months.
Features Of Auction Bridging Loans
There are some key features of bridging loans for auction which are discussed below:
- Auction finance can be pre-agreed and therefore, when the bid is won at auction, it can quickly move onto the next stage as you already have an agreement in place with the bridging lender. This is great if you want to move on with the process quickly when using an auction bridging loan.
- Auction bridging loans are unlike mortgages as they don’t require seeing employment history or business plans, which makes the whole process quicker.
- Bridging loans for auction are available between 3-18 months, and usually, you can borrow up to 70-75% loan, to the value of the property.
Things To Ensure Before Using An Auction Bridging Loan
When it comes to bridging loans for auction and bidding on a property, there are some key things to think about to ensure you can do it.
- Make sure the finance is available to you.
- Review the auction catalogue for any terms and conditions set.
- Make sure there are no outstanding issues with the property you’re looking at purchasing.
- It’s best to check the property beforehand as normally, auction houses will need work doing to them. See if you can have a viewing of the property beforehand to check what needs doing and if it would be worth using an auction bridging loan for.
- Check if the property is profitable.
- Obtain a legal pack from the auction, which will tell you about the deeds and property information.
These are just a few things to think about before going ahead and buying a property at auction when using a bridging loan.
Why Use A Bridging Loan For Auction?
Bridging loans are a quick and easy process for those you want to get a job done. There are some points below on why you should use a bridging loan for auction:
- With the loan, available from 2 weeks up to 18 months, you can use this time to get the property renovated and ready for rent or sale and have the security of the property through a bridging loan. It’s a great idea if you want to renovate a property to then rent or sell it as you have the time to do this.
- Bridging loans for auction are flexible, and therefore you’re not just set that the property must be a buy to let. With a bridging loan, you can have retail outlets, warehouses and offices that can all be financed through the loan, so it’s not always just housing properties you’re restricted to.
- The process is speedy and easy to use a bridging loan for auction as usually when the bid is won, a 10% deposit is paid on the day and then the agreed purchase price can be paid from within 28 days or even sooner. So, this is perfect for those wanting a quick turnaround and not wanting a long-term loan.
- As they are a short-term loan, you won’t be paying it back for a long time, and it can be gone quickly, depending on your finances.
- Bridging loans are at a lower interest rate due to the competitive business, so this can help to save you some extra money by paying less interest.
How To Use A Bridging Loan At Auction
When it comes to using a bridging loan at auction, there are different types available. Some things to consider before you decide which bridging loan to choose to include how much you want to borrow, what the property is worth, how long you need to borrow for and if you have a mortgage on your property.
Once, you’ve decided which loan is right for you, you then need to apply for the bridge loan;
- Decide what you need from your loan in terms of how much you need and how long you need it for.
- Have all the details about your current situation including the property value and mortgage price.
- You can choose to speak to a professional bridging loan broker or apply online; it is sometimes best to talk to someone to ensure you’re getting the right loan for your needs.
- Once you’re approved, you then need to wait for your loan money to come through which can take up to 2 weeks.
Now you’ve got your bridging loan; you can then think about using this to buy a property at auction. Before you plan to go to an auction, speak to a finance broker as they can advise your likelihood of getting finance on a property.
If you purchase at auction using a bridging loan, the bridging firm will make a formal offer for your finance, and evaluation may be required for this. This is a quick process when it comes to sorting the finance out so it shouldn’t take any longer than 7- 10 days which then gives you at least 12 months to complete renovations on the property.
It’s quite simple and straight forward when it comes to bridging loans at auction. You just need to make sure you have done your research and got advice beforehand to know what the best loan is for you and once you have applied and been approved for it, you can then go ahead and use this to buy at auction.
Bridging loans are an excellent option for those wanting a short-term loan with a quick turnaround and wanting to use it to buy a property at auction, to then be able to renovate it in a few months, to then go on to sell or rent.
Learn more about bridging loans for auctions here