Timing is crucial when purchasing a property at an auction in the UK. Once the gavel falls, payment deadlines become stringent, and conventional methods of obtaining funds, such as mortgages and bank loans, are typically impractical due to their lengthy processing and finalisation periods.
This is where auction finance becomes invaluable. This specialised form of financing is tailor-made for individuals acquiring properties at auctions. But how exactly does it function, what is the application process, and how can one secure a loan that works for them?
What are Auction Bridging Loans?
Auction Bridging Loans are a type of bridging loan that is used for acquiring property at auctions, with a specific focus on expeditious transaction completion (typically within 14 or 28 days, in accordance with the requirements of the auction house).
In general, auction purchases must be finalised within 28 days of the auction, and in most instances, securing a conventional mortgage is either impracticable (if the property is not in a habitable condition) or cannot be obtained within this time frame.
Upon successfully winning a bid, the auction house typically requests payment of 10% of the price, along with auction fees. Subsequently, you will be granted an additional 28 days to finalise the purchase.
Who Can Apply for Auction Bridging Loans?
Auction Bridging Loans are specialised short-term financing solutions designed for individuals looking to purchase properties at auctions. These loans are tailored to the unique demands of auctions, where winning bidders are often required to pay a deposit immediately and then settle the balance within a short timeframe, typically 28 days.
Auction Bridging Loans are known for their swift processing, with approval and funding often taking just a few days to ensure borrowers can meet these tight deadlines. There is always an exit strategy to consider with a bridging loan, i.e. if the borrower’s situation changes, are they able to repay the loan and unburden themselves – the sale of the purchased property is a common exit strategy. When the property is sold, the borrower can then use the proceeds to repay the loan.
Bridging Loan Calculator
Try our bridging loan calculator here. Simply fill out the information and click “Continue”.
There are only three steps involved in the process and it should only take around five minutes to complete!
We’ll do the rest and contact you back with a bridging loan quote as soon as possible.
How a Short-Term Bridging Loan Can Help
Who are Auction Bridging Loans For?
These loans are well-suited for property investors and developers who want to take advantage of auction opportunities but need quick access to financing to secure their purchases.
Unlike mortgages, auction loans tend to have shorter term lengths, with loans typically due for repayment within a range of 1 to 24 months, although certain lenders may consider extending this period up to 36 months.
What types of property do Auction Bridging Loans Cover?
Our auction property Bridging Loans are appropriate for various residential acquisitions, including apartments and houses. Furthermore, you have the flexibility to utilise this financing for commercial and semi-commercial properties. All of our Auction Bridging Finance alternatives are structured to facilitate investments within the geographical scope of England, Wales and Northern Ireland.
Auction Bridge Loans can also be used for assets that are not related to property. At Pyxis, we always advise that you should speak to an expert before proceeding with Auction Finance. There is a likelihood that other borrowing options may be more suitable.
Most types of property are acceptable for an auction bridging loan including…
- HMO (House in Multiple Occupation)
- Apartment/Flat
- Grade II Listed
- Barn Conversions
- Holiday Lets
- Standard Properties (Detached, Terraced, Semi-Detached Houses)
- Non Standard Construction
- Commercial
- Land
Benefits of Bridging Finance
The main benefit of bridging finance is the speed at which funds can be made available to the borrower. A lending decision can be agreed within a couple of hours of us receiving the initial enquiry and funds made available within days. In a competitive and fast-moving property market this allows the borrower to act quickly and secure the investment property.
| Auction Bridging Finance Basic Criteria | |
|---|---|
| Loan To Value | Up to 90% |
| Loans Available | 1st |
| Loans Size | £50,000 to £25,000,000 |
| Terms | 1 Month to 36 Months |
| Adverse Credit | Acceptable |
| Rates | From 0.45% |
Auction Bridging Loan Interest Rates
Interest rates for auction finance typically range from 0.43% to 1.25% per month in most instances. The most favourable rates are generally reserved for applications with lower Loan-to-Value (LTV) ratios, particularly those at 50% or less, as these secure more favourable terms.
The preference of a lower LTV stems from the fact that auction finance lenders assess their rates based on risk, and higher equity in the property decreases the lender’s exposure to potential financial losses. Furthermore, it’s worth noting that interest rates on residential properties are typically lower when compared to equivalent rates for commercial properties or land.
Auction Bridging Loans Eligibility
Auction Finance eligibility can depend on a number of factors, from the borrower’s creditworthiness to the property being purchased and the borrower’s exit strategy. Lenders may also look at the borrower’s credit history and financial stability when considering their ability to pay off the loan. Other factors that aren’t necessarily tied to the borrower are considered, such as the property’s value and condition – this is to ensure that the asset provides sufficient collateral.
As mentioned above, a well-defined exit strategy is crucial with Bridging Loans, as it reassures the lender that the borrower has a clear plan to repay the loan.
Meeting these eligibility criteria is essential for borrowers looking to secure Auction Bridging Loans, which are designed to provide swift financing solutions for property acquisitions at auctions.
Here are some additional things to keep in mind when applying for an auction bridging loan:
- The interest rates on Auction Bridging Loans are typically higher than traditional mortgages.
- The loan terms are also shorter, typically 12-18 months.
- You will need to pay a fee to the lender, which is usually a percentage of the loan amount.
If you are considering an Auction Bridging Loan, contact us today to discuss your options, learn of the risks involved, and begin your Bridging Loan journey today.
Enhance Your Prospects of Gaining Approval for an Auction Bridging Mortgage
Auction Bridging Loan Exit Strategies
At Pyxis, we understand that considering an exit strategy for your loan can be a daunting task that discusses ‘worst case scenarios’ – because of this, we are here to take care of it for you. From day one of your borrowing journey, we will begin to research potential exit strategies for your loan. We will also work with you to obtain an Agreement in Principle with a long-term lender, so that you have peace of mind knowing that your loan is covered.
If you are looking for Auction Bridging Finance, we encourage you to contact Pyxis today. Our team of friendly experts are more than happy to discuss your needs and find the best possible solution for you. Get in touch today.
Our range of bridging loan solutions includes…
Get matched with an auction finance broker today
The Team at Pyxis Capital have extensive knowledge of bridging finance and take time to understand a client’s needs and requirements.
You will have a single point of contact from start to finish and will also be provided with direct contact details for one of our Company Directors.
Most importantly you won’t be left with the finding an Exit Strategy from your bridging finance facility. As this is something that will be researched on day one and if possible, agreed in principle with a long-term lender.
Auction Bridging Loan – FAQs
To acquire a property at auction, you will need to make a deposit of at least 10% to the auction house. You will then need to introduce a further 10% to 15% deposit to secure bridging finance. The further deposit is normally from business funds or individual personal savings. Some lenders are prepared to place a charge against other property owned if there is enough equity and the property is a suitable asset. This means that business funds or personal savings remain available to support cash-flow or any refurbishments of the property.
Use our Bridging Loan calculator to obtain an approximate estimate of a Bridging Loan that is tailored to your own circumstances.