You normally have 28 days to complete on a purchase when buying a property at auction.
Mortgage lenders find it difficult to get a mortgage paid out within such a short period of time.
There is a solution with bridging finance. We have access to bridging lenders who will provide a decision on the property for you before the auction date.
They have competitive interest rates and fees and can deliver.
A decision in principles can be issued the same day and solicitors and valuers are instructed within 24 hours.
We will always focus on how it will get repaid. We see a lot of bridging brokers who don’t consider this. We do.
We were approached by an experienced HMO investor who was purchasing a tired six bedroom property in London for £900,000. It had no licence and wasn’t mortgageable due to its condition.
The client had been speaking to another broker who told him he could get a buy to let mortgage on the property. When the valuation was received the lender declined it, due to its condition.
He was now 14 days into the 28 day timescale and was in danger of losing a £90,000 deposit along with the potential of being sued.
A lender who could deliver within this timescale was approached and the client received terms the same day.
As the valuation was being done the lender’s solicitor emailed their requirements across and this was worked on whilst we were waiting for the report.
All the supporting documentation was provided by the client quickly to his solicitors who were now ready to complete by the due date.
The client successfully refurbished the property within three months and it’s now a profitable addition to his portfolio.
Auction Finance Questions
A form of short-term finance also known as bridging finance. It’s used to finance properties purchased at auction as you usually have 28 days to complete. Long-term lenders are usually not quick enough to deliver within this timescale.
Yes you can. Please send a link to the auction house, lot number, your bid price, details of the project and your experience along with costs, timescale and end value.
We will approach lenders on your behalf to obtain competitive funding so you have the comfort of having the finance in place before bidding commences.
As well as traditional housing we have lenders who are used to financing commercial units as well as semi – commercial ,where you have residential upstairs.
Up to 75% loan to value (LTV) of the lower of purchase price or valuation on residential with most lenders and with some based on the valuation. As well as finding money for the deposit, in most cases you will have to pay the lenders interest and fees upfront. With commercial property the LTV is 65% – 75%.
It’s dependent on you, the property, your intentions and the amount of the loan. Buying a property to do a light refurbishment will have a lower rate than a basement or loft extension.
As well as the setup fee which typically is 2% there will be a monthly interest rate, valuation fee and usually two sets of solicitors. Normally you would appoint your own and pay for the lenders. There are some lenders who allow you to use theirs which reduces costs and speeds the process up.
If there is heavy refurbishment and you are borrowing against the future value of the property there may be additional monitoring costs as well.
There will also be our broker fee for the work involved in arranging the finance and dealing with all parties to ensure that it completes on time.
We are very transparent and will provide details of the rate and fees before you enter into any commitment.
Most lenders retain interest, and a minority roll it up and if you have plenty of surplus cash per month you might get serviced.
Retained and rolled up interest is deducted from the amount you wish to borrow.
You have to find sufficient funds to cover the interest for the period of the loan as well as the deposit.
Retained is the most common and for the majority of the lenders this is the only option you have.
Serviced is like a traditional mortgage when you are allowed to pay the monthly interest from your income.
We usually arrange a term of between nine and 12 months. That gives you sufficient time to complete the project and either sell or remortgage. If it’s a longer project we have lenders that go up to 24 months.
If you only remember one point from this page this should be it. Getting into bridging is a lot more straightforward than getting out. If you are looking to sell to repay the loan you need a plan B, which is usually a remortgage of the property.
When we receive an enquiry we spend our time initially on it’s repayment which gives the lender and more importantly you, the confidence that all your options have been considered.
The last thing anybody wants is sleepless nights worrying how a loan is going to get repaid.
Unfortunately we have seen numerous examples where the focus has purely been the bridging loan and the exit hasn’t been considered.
There are some lenders who don’t require valuations and this is a major selling point, however in our experience it is recommended. If you don’t get one, when it comes to sell or remortgage and the valuer identifies a problem that hasn’t been rectified you may not be able to repay your bridging loan on time. It’s far better to know any issues before you do any work as it will be more cost-effective for you.
All brokers and lenders do not share our morals and quite often you will see a very attractive interest rate to hook you in and then further on in the process the rate increases and it’s too late to go anywhere else.
There are also lenders who offer lower rates for the first 3-6 months of the loan but increase them considerably after that.
It can be quite difficult to buy a property, do a refurbishment and remortgage within this period. Often a longer term with a higher rate at the beginning is better value for you.
Watch out for the method of valuation. It should ideally be Open Market Value (OMV) which does not impose a time restriction on the sale. Some lenders work off 180 day or even 90 day which usually is much lower than the OMV.
Finally what’s the reputation of the broker and the lender like? Some of the smaller lenders may not have the money to complete on the loan.
If your broker is not FCA regulated they won’t have direct access to all of the more established lower-priced lenders.
You can check the regulation by looking at the bottom of their emails or website and either they or the firm should be on the FCA Register.
You may have the quickest broker and the best lender in the market but if you don’t have a good solicitor the process may be extremely stressful and can even result in missing the auction deadline.
It’s essential your solicitor has experience of bridging finance and dealing with a lender’s solicitor as not many do.
We have a list of solicitors that understand the bridging market and some lenders will also allow their solicitor to act for you.