Homes Under the Hammer – bridging loans for auction purchases

In an article produced for Bridging Loan Directory, we discuss how bridging loans can be used to cover the cost of buying property at auction.


Buying property at auction is a very attractive prospect for many property investors – from the fast bidding to the final fall of the hammer, this method of buying has a lot of appeal.


The attraction of being able to take advantage of properties which can often be secured at a price below market value undoubtedly sparks a great amount of interest amongst property investors. Albeit many auction properties are often in a state of disrepair and it is likely the person interested in purchasing the property has never seen the premises before, if the buyer has the tools, knowledge and funding in place, it can be a very rewarding transaction.


The main thing to consider as a property investor interested in buying at auction is that on most occasions, you are required to complete the purchase within a 28-day time frame. As a result, funds to purchase, and often renovate, are needed extremely quickly. Compared to traditional, long-term financing options, such as mortgages, bridging lenders are much more likely to be able to meet this timescale and are also very flexible about the types of property the borrower is looking to purchase, as well as their individual circumstances.


The most common reasons borrowers use a bridging loan to fund an auction purchase are typically:


  • Fast turnaround – funds can be made available almost instantly, in some cases within a matter of days.
  • Customised solution – each loan is evaluated on its individual merits and can be tailored to the borrower’s specific requirements and needs.
  • Flexibility – most bridging lenders are not bound by the restrictive loan conditions other finance options are tied too. Additionally, funds can be organised whenever suits the client whether that is before, during or after the auction.
  • Quick decisions – bridging lenders are known to turn things around quickly and can often offer terms within an hour of receiving an enquiry.

Before you head to an auction house, it is highly recommended you make sure you have all the tools and knowledge you’re going to need before you raise your paddle.


For example, it is helpful to arrange a valuation or assessment and agree finance in principle before the auction. This can help avoid overbidding, leading very quickly to so-called winner’s regret, when the brief thrill of a successful bid is replaced by the rather less agreeable sensation of not being able to raise the necessary finance to complete the purchase.


Talking to a bridging lender before bidding at auction is also highly advised, as it is crucial to understand the amount of money which you may be able to be acquire and at what LTV. As a result, this will help provide a good idea of the amount you should bid at the auction.


Another advantage of using a bridging lender to fund an auction purchase, is it can provide greater flexibility around the range of properties which can be financed. Specialist finance firms tend to lend on properties which mainstream lenders will not, e.g. a flat in a multi-storey building, house without a bathroom or kitchen, to name a few examples.


In addition, retail outlets, semi-commercial property, warehouses, offices and industrial units, along with many other forms of residential, commercial and mixed-use projects, can all be financed using bridging loans. It can also be used to convert an existing property to an HMO or full change of use from commercial to residential, even where planning permission is required. Bridging loans can even be used to finance land purchases.


Ultimately, for any form of property purchase, the borrower should have a clear long-term plan in order to realise a significant appreciation in value for resale, or to enable the property to begin to generate revenue so it can secure longer-term refinancing.


In summary, for those looking to experience the ‘Homes Under the Hammer’ process, you will initially need a source of finance that is fast and reliable, which is why short-term bridging finance is a natural choice. It is quick to secure, convenient, gives the borrower fast access to the funds they need and provides flexibility.


At Hope Capital, we have a significant amount of experience working with brokers and borrowers alike to provide a tailored solution to help those who are looking to buy at auction, meet their deadline.

Share this article