If you’re planning to buy a property at auction or are interested to see what your options might be, it can be beneficial to have a funding plan in place. When it comes to auctions, timing is key. Traditional forms of borrowing such as residential mortgages will usually take too long when trying to buy a property at auction, so having a payment method in place can significantly improve your chances of success. This is where bridging loans come in.
Can Bridging Loans Be Used For Auction Properties?
Yes, bridging loans are particularly well-suited to auction property purchases due to their speed and flexibility. When buying a property at auction in the UK, bidders will typically need 10% of the purchase price ready once the auction has ended, and full payment to be transferred within 28 days. Traditional mortgage lenders will generally require a longer period of time to approve a loan application, which may not align with the speed at which auctions run. Yet bridging loans can be arranged quickly, allowing potential buyers to secure the properties they’ve got their eye on at auction.
What Types Of Properties Can Be Purchased With A Bridging Loan?
Bridging loans are rather versatile when it comes to the types of properties that can be purchased. Both residential and commercial (or semi-commercial) properties can be purchased with a UK bridging loan as well as land. This means that, regardless of whether you are planning to buy a commercial property, residential buy-to-let, or even a development opportunity, a bridging loan can help provide the necessary funds needed to secure it, removing any financial stress.
Benefits Of Using A Bridging Loan For An Auction Property
Choosing a bridging loan for an auction purchase can come with a number of key advantages including a competitive edge, quick approval and flexibility. Bridging loans can therefore be highly attractive for many auction-goers.
A significant benefit is that a bridging loan can offer a competitive edge in auction environments. As auctions can be particularly high-pressure environments where time is of the essence, being able to bid confidently knowing you have the financial means to secure the property can give you an edge over competitors.
Bridging loans are also known for their flexibility as they can be tailored to a borrower’s specific needs and property requirements. This means that by choosing a bridging loan, you may be able to choose a repayment schedule that aligns with your financial situation whilst securing a property that may not meet traditional mortgage criteria.
It is also worth noting that bridging loan lenders understand the urgency that is associated with auction purchases, so if brought to their attention, they are likely to move quicker for approval compared to standard mortgages. This can ensure there are no delays to your purchase.
What’s The Difference Between Bridging Loans And Other Loans?
Despite bridging loans sharing some similarities with other UK loans, they have distinct differences that make them a preferred choice for auction purchases including accessibility, flexible repayment, and the need for collateral.
Flexible Repayment: Borrowers can choose to repay the loan as a lump sum or through structured instalments, accommodating for different financial situations.
Short-Term: Bridging loans are designed to be short-term financial solutions typically ranging from a few weeks to a year or so. Due to auctions requiring speedy transactions, this can work well.
Collateral Requirements: Generally, bridging loans will be secured against the property that is being purchased, using it as collateral. This makes it more likely for applications to be approved as it reduces risk to the lender.
Accessibility: As the focus of bridging loans sits on the value of the property and the borrower’s exit strategy, this makes them more accessible to borrowers who make struggle with traditional forms of funding.