Won a Property at Auction? Here’s How to Secure Funding Before Time Runs Out!
Snagged a Bargain at Auction? Now It’s a Race Against Time!
Buying a property at auction in the UK is an exhilarating experience. You’ve beaten the competition and secured a great deal—but now the clock is ticking! Most auction purchases require completion within 28 days, leaving little time to arrange traditional mortgage financing.
So, how do you fund your purchase quickly? Enter bridging loans—a fast and flexible solution that ensures you don’t lose your deposit or your new property.
What Is a Bridging Loan and How Can It Help?
A bridging loan is a short-term loan designed to “bridge” the gap until longer-term finance is arranged. In the case of an auction purchase, it helps buyers quickly access funds while they arrange a mortgage or refinance.
Why Choose a Bridging Loan?
✅ Speed – Funds can be secured in as little as 5-14 days.
✅ Flexible Criteria – Unlike mortgages, lenders focus on the property value rather than your income.
✅ Short-Term Solution – Loans typically last 3-18 months, giving you time to arrange long-term finance.
✅ Ideal for Renovation Projects – If your auction property is unmortgageable (e.g., no kitchen or bathroom), bridging finance allows you to buy, refurbish, and refinance later.
✅ Competitive Loan-to-Value (LTV) – Borrow up to 75% of the property’s value, sometimes even more with additional security.
How to Apply for a Bridging Loan for Auction Purchases
Step 1: Find a Specialist Broker
Not all lenders offer bridging finance, so using an experienced broker (like us at Sunrise Commercial) ensures you get the best deal.
Step 2: Get a Decision in Principle (DIP)
Before bidding, get a Decision in Principle (DIP) to confirm how much you can borrow and your expected interest rates. This improves your confidence at auction.
Step 3: Secure the Property at Auction
Once you win the auction, you typically pay a 10% deposit on the day and sign a contract agreeing to complete within 28 days.
Step 4: Submit a Formal Bridging Loan Application
Your broker submits your application with:
✔ Auction details and property valuation
✔ Proof of funds for deposit
✔ Exit strategy (e.g., refinancing, resale)
✔ Solicitor details for legal processing
✔ Additional security (if applicable) to secure better rates
Step 5: Legal & Valuation Checks
The lender will arrange a valuation of the property, and your solicitor will handle legal checks, including title deeds, leasehold arrangements, and any outstanding planning permissions.
Step 6: Funds Released & Completion
Once everything is approved, funds are transferred before your 28-day deadline, ensuring a smooth purchase.
Pros and Cons of Bridging Loans
Pros
✅ Fast access to funds – Unlike traditional mortgages, which can take months, bridging loans complete in weeks.
✅ Flexible lending criteria – Suitable for buyers with complex circumstances.
✅ Higher borrowing limits – Lenders may offer up to 75% loan-to-value (LTV) depending on the property.
✅ Ideal for uninhabitable properties – Great for investors looking to renovate and sell or refinance.
✅ No early repayment penalties with some lenders – If you exit early, you can save on interest.
Cons
❌ Higher interest rates – Typically 0.45%-1.5% per month, so it’s more expensive than a mortgage.
❌ Short-term solution – You must have a clear exit strategy.
❌ Additional fees – Expect arrangement, valuation, and legal fees.
❌ Risk of repossession – If you fail to exit in time, you could face financial penalties or lose the property.
How to Exit a Bridging Loan (So You Don’t Get Stuck!)
Exiting a bridging loan is crucial—if you don’t repay in time, you could face penalties or even repossession. Here are the main exit strategies:
1. Refinancing to a Mortgage
Once you’ve secured the property, you can switch to a traditional mortgage with lower interest rates. Many auction buyers use bridging finance as a stepping stone before securing a buy-to-let or residential mortgage.
2. Selling the Property
If you’re an investor, you can sell the property at a profit after renovations and repay the loan. This is a common strategy for property flippers.
3. Using Development Finance
For developers planning large-scale refurbishments, switching to development finance can provide long-term funding to complete the project before selling.
4. Joint Venture or Private Funding
Some investors opt for a joint venture partnership or private investors to refinance the property and complete their exit strategy.
FAQs About Bridging Loans for Auction Purchases
1. Can I get a bridging loan with bad credit?
Yes! Many bridging lenders focus on the property value and exit strategy rather than credit history. However, expect higher interest rates if your credit is poor.
2. How quickly can I get a bridging loan?
Bridging loans can be completed in 5-14 days, making them one of the fastest funding solutions available.
3. What’s the typical interest rate for a bridging loan?
Rates range from 0.45% to 1.5% per month, depending on the loan amount, property type, and your financial profile.
4. Are there any hidden fees with bridging loans?
Expect fees such as:
- Arrangement fees (1-2% of loan amount)
- Valuation fees
- Legal fees
- Exit fees (if applicable)
Always work with an experienced broker to find the most transparent lenders.
Final Thoughts: Don’t Lose Your Dream Property!
Bridging loans are a lifesaver for auction buyers, providing fast and flexible funding when traditional lenders fall short. However, they come with higher costs and require a clear exit strategy.
💡 Need help securing bridging finance for your auction property? Get expert advice and the best rates from Sunrise Commercial. Contact us today!
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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