AUCTION FINANCE: Auction Bridging Finance & How it Works

Purchasing a property at auction might be thrilling, but it is a speedy process. When you locate a house you want, you need money fast, and unlike traditional property purchases, you’re on a schedule. Auction finance is a type of bridging loan that can help you buy a home in this situation. In this article, we’ll discuss all you need to know about auction bridging finance to enable you to successfully win a property at the auction house. 

Auction Finance

Auction finance is a form of bridging loan intended specifically for customers who intend to acquire a property at the auction house. One of their primary selling features is that they are extremely easy to get up, much faster than traditional bridging credit agreements.

This is fantastic news for auction buyers because payment deadlines are often tight once the hammer falls on a property transaction. This means that other forms of funding, such as mortgages, are of limited use due to the time it takes to arrange and finalize.

When purchasing property at auction in the UK, successful bidders often have 10% of the finance available to give over once the auction comes to an end. Payment in full is usually within 28 days, and auction finance is ideally ready to meet these requirements.

Understanding Auction Finance Uses

Auction finance is used to buy things at the auction house. This type of loan is quick and allows you to make your purchase very quickly. For homes that aren’t for sale on the general market, auction finance might be a terrific way to make money. Here’s how to get the most out of auction finance in the UK:

#1. Research and make a game plan

The first step is to figure out what kind of home you want to buy. You will need to look at the online auction catalogue and choose a property that you want to bid on or buy. Consider how much work the house needs. Is the place good? It’s important to find out the prices and values of similar homes in the area.  Also, is the property worth what it costs, and can it make money?

#2. Acceptance on a trial basis

The next step is to get pre-approval from the person you want to work with. This is the first step in the process of getting it right. It might include credit checks, ID checks, and a quick online assessment of the property. It’s a goal of this to give you the confidence that there is money available, and how much money there is, in general (usually as a percentage of the purchase price).

#3. Secure the auction

The winner of the auction is the one who gets the most finances and may go to the auction house with the finance and start bidding. You need to be ready for this. It might be possible to pay 10 per cent of the price right away, as well as auction fees. In the next 28 days, you can buy the house through your lawyer. As soon as you buy the house, you will also have to insure it.

How Does It Function?

Auction finance, like typical bridging loans, is available on a short-term, interest-only basis. It’s possible to receive your funds within 14 days after applying if you have a sufficient deposit (or another property/asset as security) and have demonstrated a clear exit strategy.

The exit strategy essentially describes how you intend to repay the debt after the period. In most cases involving real estate or land, the exit route is either a remortgage or the sale of the asset. Auction finance lenders in the UK prefer to see either evidence of its saleability or an agreement in principle as proof of a potential exit route.

Additionally, auction finance has far shorter-term periods than mortgages. Loans are typically repayable in 1 to 24 months, but certain lenders may agree to up to 36 months.

During this time, what kind of interest rates can we expect?

In general, the interest rates for auction finance house is higher than the rates for mortgages, and they’re likely to be about the same as the rates you’d get on a bridging loan. If your application is good and the lender charges interest in a different way, the amount of interest you’ll pay will depend on that.

They usually charge interest in one of three different ways:

• Monthly- you pay a small amount of interest. At the end of the term, you have to pay off the whole debt.
• Rollover- all of the interest is added together and rolled into one big sum. There is a cumulative payment at the end of the term.
• Retain: The lender works out how much money you will owe at the start of the term by adding your monthly interest payments together with the amount of the loan. You borrow the interest, usually for a set amount of time, and pay it back at the end.

Why should you work with an Auction Finance Specialist Lender?

It’s always best to work with a professional. When it comes to auction finance lenders, here’s why:

• Personal Attention

Lenders prefer to provide personalized service. From the initial inquiry to loan fulfilment, you will be assigned a professional case manager to handle your needs.

• Quick Decisions

Also, they try to deliver a full decision in principle on the same day that they receive your inquiry. Lenders will provide complete, thorough terms for the specific loan.

• Customized for You

They examine each loan on its own merits and can be adjusted to your personal needs. Their rates and fees are market competitive and will be provided at the outset of your inquiry process.

• Non-Standard Facilities

Auction finance lenders do not require company plans or cash flow forecasts, and they are flexible in terms of credit history. The loans are offered and backed by the property’s worth.

• Flexibility

 Loans can be arranged before, during, or after the auction, giving you the freedom to arrange your financing whenever you want, and appraisals can be completed following a successful auction bid.

• Fast Turnaround 

Funds are available within 7-10 days, so you may be able to finish within a week of your initial inquiry with the help of a friendly solicitor.

Auction properties to use and secure a loan

Auction finance doesn’t only allow for the purchase of a house. The list of properties you can borrow against is quite extensive, ranging from offices to shops to residential buildings. Here are a few examples of what you can borrow against:

• Retail establishments/stores
• Property that is in decay or is unmortgageable
• Properties that are vacant
• MOs and commercial properties with many tenants
• Land with or without zoning approval

The Benefits and Drawbacks of Auction Finance

Auction financing, like any other type of finance, has advantages and disadvantages.

Advantages

• Purchase foreclosed properties – You can purchase foreclosed properties that typical mortgage lenders would not touch.
• 100% financing is feasible — you can secure up to 100% of the home purchase price.
• There is no limit loan size – there is no maximum loan amount that is suitable for all investors and property developers.

Disadvantages

• Security at danger — As with any loan, missing payments might harm your credit score and cause you to lose your security.
• Penalties — If you exceed your loan term, you will face steep penalties.

Fees and charges — Check with your lender to see whether there are any fees, such as departure or arrangement fees.

Auction Bridging Finance UK

Auction bridging finance is a sort of finance for acquiring a property at an auction house in the UK. It assists property investors in completing their purchases quickly, as auction transactions must normally end within 28 days. People who buy property at auction must pay a 10% deposit on the day of the auction and sign a legally binding contract to pay the rest of the money in 28 days. This is where auction bridging finance for auction comes into play. 

Auction bridging finance is a good choice because they help fill in a gap until you find a long-term mortgage or sale. It can be used to buy land, commercial and semi-commercial buildings, residential and buy-to-let properties, and other types of properties.

Things to Check Before Bidding for a Property at the Auction House

Land or commercial units are also often bought and sold at auction. These purchases are easier and faster to pay for with a bridging loan than with any other type of loan. Remember that property is often sold at auction for a reason, so think about that before you buy it. This can be because the property needs to be fixed quickly, but more often because it has a flaw.

In either case, the bridging loan is repaid by selling the property at auction or refinancing it with a new mortgage. The bridging loan can also be paid off with available cash. That being said, the following are the list of what to check prior to bidding for a property at an auction:

• That money is available to you.
• Make sure there aren’t any problems with the property you want to buy.
• Check the auction catalogue to see if there are any rules.
• If you want to buy a house at auction, it’s best to look at it with a builder, architect, or surveyor to figure out how much work and how much money it will cost.
• Check to see if the project is going to be profitable or not.
• You can get a legal pack from the auctioneers that include title deeds, a search of the local government, and information about the property.
• Carry out any legal searches to see if there are any restrictive covenants.

Buying Auction Property Using Bridging Finance UK

Since the majority of purchasers do not have the funds on hand to purchase a property altogether, particularly in certain sections of the country where property values have skyrocketed, bridging finance comes into play. 

Bridging Finance can be set up in concept before, during, or after the auction, and executed immediately after the winning offer. These are often faster than mortgage finance, which takes much longer to organize due to the need to assess credit and affordability, among other reasons.

Bridging finance can also be employed when a property is inappropriate for mortgage financing. A bridging lender will take a property that lacks a kitchen, bathroom, or both, but not a mortgage lender.

Furthermore, bridging finance can be established on a newly constructed property that has not yet been completed or on a refurbishment project that has fallen through for whatever reason. Neither of these examples is generally allowable for mortgage finance.

However, since bridging loans are simply based on the value of the security asset, as long as the valuation is acceptable, the lender will typically lend up to their maximum Loan to Value or the size of the loan in relation to the value of the security and will do so quickly and without the hassle of a mortgage.

Summary

Auction finance allows you to quickly purchase an auction property in the UK; in fact, you can secure a bridging loan agreement in less than 24 hours. As a result, you can confidently fulfil the 28-day auction time frame.

This form of short-term financing is an excellent funding alternative for both new and experienced property developers. Ultimately, auction finance allows you to build your property portfolio faster.

FAQs On Auction Finance