Win Your Auction Property with Confidence: Secure a Bridging Loan Before Bidding Begins!
Buying a property at auction can be an exciting yet nerve-wracking experience. The fast-paced nature of auctions means you must be prepared to make quick decisions and secure funding in advance. Properties can sell in minutes, and without the right financial strategy, you could miss out on a great investment opportunity. The clock is ticking, and when the hammer falls, you’re expected to pay a 10% deposit immediately and complete the full payment within 28 days. But what if you don’t have all the funds available? That’s where a bridging loan can be a game-changer.
Bridging finance allows you to secure the funding you need before you bid, giving you the confidence to go into an auction knowing exactly how much you can afford. In this guide, we’ll explain how to arrange a bridging loan before a property auction, the costs involved, and the advantages and disadvantages of using this type of finance.
How to Arrange a Bridging Loan Before a Property Auction
Arranging a bridging loan in advance ensures you don’t miss out on the perfect property due to lack of funds. Here’s a step-by-step guide to securing one before the auction begins:
- Get a Decision in Principle (DIP) – Before you start bidding, speak to a specialist bridging loan broker (like us at Sunrise Commercial) to obtain a Decision in Principle. This will give you a clear idea of how much you can borrow and under what terms. For example, a recent client of ours secured a DIP for £250,000 within 48 hours, allowing them to confidently bid on their desired property.
- Valuation and Loan-to-Value (LTV) Assessment – Lenders will assess the value of the property and determine the Loan-to-Value ratio, which typically ranges from 65% to 75% of the property’s value. For instance, one investor used bridging finance to secure a rundown auction property at 70% LTV, refurbishing it before refinancing with a buy-to-let mortgage.
- Understand the Loan Terms – Bridging loans are short-term solutions, usually lasting from a few months to a year. They are designed to be repaid once you secure longer-term financing or sell the property. A property developer we worked with used a 12-month bridging loan to renovate and sell a commercial-to-residential conversion, making a substantial profit within the loan term.
- Prepare Your Documents – Lenders will require details about the property, your exit strategy (how you plan to repay the loan), and basic financial information about you. Having these ready speeds up approval.
- Have a Solicitor Ready – Property transactions move quickly at auctions, so having a solicitor in place ensures a smooth process when completing the purchase. In one case, a well-prepared buyer completed their auction property purchase within 21 days thanks to a proactive legal team and pre-arranged finance.
By arranging finance in advance, you’ll bid with confidence, knowing your funding is ready to go!
The Costs of a Bridging Loan
While bridging loans are convenient, they come with associated costs that you should consider before proceeding. Here’s a breakdown of what to expect:
- Interest Rates – Typically range from 0.45% to 1.5% per month, depending on your circumstances.
- Arrangement Fees – Usually 1% to 2% of the loan amount.
- Valuation Fees – The lender will require a valuation, costing anywhere from £300 to £1,500.
- Legal Fees – You will need to cover both your legal fees and, in some cases, the lender’s legal costs.
- Exit Fees (if applicable) – Some lenders charge an exit fee when you repay the loan, although not all do.
Understanding these costs in advance allows you to budget effectively and make informed decisions at the auction.
Advantages of Using a Bridging Loan for Auction Purchases
Speed – Bridging loans are designed for quick transactions, allowing you to complete within the required 28-day period. Bidding Confidence – With finance arranged beforehand, you can bid aggressively without worrying about securing funds afterward. Flexible Exit Strategies – Whether you plan to refinance with a mortgage or sell the property for a profit, bridging loans offer flexibility. No Monthly Repayments (Sometimes) – Some lenders allow rolled-up interest, meaning you pay the full amount at the end instead of monthly payments.
Disadvantages of Bridging Finance
Higher Interest Rates – Because these loans are short-term, they tend to have higher interest rates than traditional mortgages. Fees Can Add Up – With arrangement fees, valuation costs, and legal fees, the total expense can be significant. Exit Strategy is Crucial – If you fail to secure long-term financing or sell the property as planned, repaying the loan can become a challenge.
Final Thoughts: Is a Bridging Loan Right for You?
If you’re looking to buy a property at auction but don’t have the full funds ready, a bridging loan can be the ideal solution. By securing finance before bidding, you eliminate uncertainty and ensure a smooth purchase process. However, it’s vital to understand the costs involved and have a clear exit strategy to avoid unnecessary risks.
Bridging loans offer speed and flexibility, making them an attractive option for investors and developers who need fast funding. They allow you to take advantage of auction opportunities that might otherwise be out of reach. That said, the higher interest rates and associated fees mean that careful planning is crucial. Before proceeding, ensure that your exit strategy—whether refinancing with a mortgage or selling the property—is solid and achievable.
At Sunrise Commercial, we specialise in arranging fast and flexible bridging loans for property investors, developers, and homebuyers. With our expert guidance, you can navigate the auction process with confidence, knowing your funding is secured.
For more information contact us for a fees free chat.
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Call us at 07939 091418
Email: john@sunrisecommercial.co.uk
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