Bridging Loan for Auction Property: Explained

Auctions, particularly for properties, are highly competitive, so how can you go into the auction room with full confidence that you can fulfil the price mark within the given timeframe?

The answer, a bridging loan for auction property.

Find out here how bridging loans can be just what you need to grow your property portfolio and take the next step in your investment journey.

What Are Bridging Loans for Auction Property?

Bridging loans are short-term finance options used to “bridge” a gap between buying a property and arranging a longer-term financial solution.

When it comes to auction finance property purchases, bridging loans become particularly useful because auction rules often require completion within 28 days or less.

Auction bridging finance is designed to move quickly. Once you win a bid at auction, you’ll usually have to pay a deposit immediately and then complete the purchase within a fixed number of days. 

That being said, time is of the essence and traditional mortgages are simply not the answer to align with this timeframe due to lengthy approval processes, valuations, and underwriting. 

Bridging loans, however, can be approved within days or even hours and provide the funds needed to meet the auction deadline.

They are commonly used to secure properties at auction before sorting out longer-term funding or resale plans. The loan is typically secured against the property being purchased, which works as collateral and is repaid once the buyer’s exit strategy has been completed.

Why Bridging Loans Are Beneficial at Auctions

Auction property finance is largely about timing. 

That being said, with limited time between exchange and completion, having fast funding is essential. Bridging loans give buyers the ability to act quickly and with confidence.

Knowing that your finance is lined up before bidding can give you the peace of mind to pursue opportunities aggressively without worrying about delays.

There’s also the benefit of flexibility. Auction bridging finance can be tailored to the buyer’s specific needs, covering everything from residential houses to semi-commercial and commercial properties, there really is no one-size-fits-all approach here.

This type of loan isn’t dependent on income the way a mortgage is; instead, lenders can look at the specifics, such as the value of the property which is acting as collateral and the strength of the exit plan.

Buyers also often use bridging loans to fund refurbishments after purchase, which can significantly increase the property’s value before a refinance or resale. For investors looking to expand their portfolio, bridging finance can be the ideal tool for turning auction opportunities into profitable projects.

What Are the Rules for Purchasing Property at Auction?

Whether it’s your first time or not buying under the hammer, understanding the auction process is important before bidding. 

Upon winning the auction, a legally binding contract is created. This is when property auction finance comes in as you’ll need to pay a deposit, which typically sits at 10% of the purchase price and this is required right away.

Completion typically takes place 28 days later, and failing to meet this deadline can result in tons of complications, so it’s important to get this done sooner rather than later.

That’s why preparing your auction finance in advance is critical. It also reassures auctioneers that you’re a serious buyer, which can sometimes influence how flexible they are with terms or documentation.

Most auction houses publish a legal pack for each property ahead of time, – you can see what this would typically include here – which includes the title, searches, and special conditions. 

Reviewing this with a solicitor is advisable before bidding. Once you’ve secured the property, you’ll then work with your lender and legal team to ensure all documents are in place for a smooth completion.

The rules can be complex for a first timer, but with the right funding in place, stress is dramatically reduced, so think about finances before attending the auction. 

Where to Get Auction Bridging Finance

Auction finance across the UK is available through specialist bridging lenders who understand the speed and structure required for these types of transactions, like us at MS Lending Group.

Ultimately, bridging lenders are typically more flexible than banks offering mortgages as the assessment process is much more case specific.  

As a bridging lender ourselves, we would recommend speaking to a lender of your choice well in advance of the auction so they can assess your circumstances, the property type, and your intended exit strategy. 

With the right preparation, bridging loans for auction property can be arranged quickly and efficiently, get in touch with our team at MS Lending Group to find out how we can help you do just that.

Frequently Asked Questions

Can I get a bridging loan for an auction property?

Yes, bridging loans are commonly used to finance auction properties due to their fast approval and flexible terms. They allow buyers to meet tight auction deadlines and secure property opportunities without waiting for a traditional mortgage.

Can you borrow money for an auction property?

Absolutely. Many buyers borrow using auction bridging finance, which is secured against the property. This funding is short-term and typically repaid through refinancing or the sale of another asset.

Can you port a mortgage to an auction property?

Porting a mortgage is not typically suitable for auction purchases. The process of porting can take time and is often subject to eligibility checks and lender approvals that don’t align with auction deadlines. Bridging finance is generally more appropriate in these time-sensitive situations.