Bridging loans are quick loans that can help buyers unlock the funds needed to buy a property at auction. This type of bridging loan is called auction finance.
Many auction finance loans can be approved within weeks, making them a great option for investors looking to secure property at auction.
What is Auction Finance?
Auction finance is a type of bridging loan that helps buyers secure properties at auction within the 28-day deadline.
It is commonly used by property developers, investors and homeowners for both residential and commercial properties. Upon winning an auction, a buyer must pay a 10% deposit immediately, followed by the remaining 90% within 28 days. Auction finance bridges this gap, allowing buyers to act quickly, giving them time to organise longer term financing options once the property has been secured.
How Does Auction Finance Work?
Before going to an auction, buyers should find a property of interest, inspect it where possible, and arrange funding.
On auction day, a 10% deposit is required immediately after a successful bid. The remaining 90% must be paid within 28 days. Given this can be a big chunk on money, a large percentage of it is often paid through auction finance.
Typically, this type of finance covers up to 70% of the property value and uses the property as security. This means that if the borrower defaults, the lender can sell the property to pay off the loan.
Loan terms for auction finance usually last up to 12-15 months, during which the borrower must have a clear exit strategy, such as selling the property after a renovation or refinancing through a traditional mortgage.
For more information on refinancing read our blog around How to remortgage after a bridging loan.
Who Is Eligible For Auction Finance?
To qualify for auction finance, buyers must meet certain criteria.
A minimum deposit of 30% of the loan amount will need to be paid upfront, though a larger deposit can help secure lower interest rates.
Lenders will also want to see a solid exit strategy to make sure the loan can be repaid by the end of the term.
Buyers need to provide evidence of the property’s value and saleability, such as a valuation or an agreement in principle from a mortgage lender. While income and credit history are important, they won’t prevent you getting a loan. However, bad credit may mean higher interest rates.
Steps To Buy A Property at Auction
Start by researching auctions using local catalogues or online platforms.
Preview the properties you are interested in and, if possible, inspect them beforehand. This can help you work through any potential issues, and allow you to more accurately work out the cost of any extra work that needs to be done.
Set a clear budget to avoid overbidding – but give yourself around 10% contingency just in case.
Attend the auction in person, online, or via phone and bid on your chosen property. Once you win, pay the 10% deposit immediately.
Finally, arrange for auction finance to cover the remaining balance within the 28-day deadline.
If you are looking for quick finance, get in touch with Blue Square Capital today at 020 3912 8360
What Costs Do You Need To Budget For?
Interest rates usually start from 0.95% per month and are fixed for the loan term, which usually lasts up to 15 months.
You will also need to budget for extra costs like an arrangement fee (2% of the loan amount), an admin fee (£999), a bank transfer fee (£25), valuation and survey fees, solicitor fees, and other expenses.
Understanding these costs beforehand can help you secure the level of funding you need.
The Pros and Cons of Auction Finance
Auction finance has a number of advantages.
The quick turnaround time for the loan allows buyers to meet the 28-day deadline, meaning they can secure the property that they bid on.
Properties at auction often start below market value, so having the cash available to buy them can mean good discounts.
Auction finance can also unlock higher sums than personal loans, making them much better suited to property purchases.
However, there are some drawbacks to think about. Buyers must have the 10% deposit ready on auction day. This can be a challenge depending on the price of the property. Auction finance is also only likely to cover 70% of the loan amount, meaning the remaining capital will need to be funded elsewhere.
Finally, as with any secured loan, failure to repay the loan can result in repossession of the property. Because of this, auction finance should only be used if you are confident you can pay it back.
Why Choose Blue Square Capital For Auction Finance?
Blue Square Capital is a trusted lender with a strong track record in auction finance. They offer fast funding, with loans often completed within two weeks—well ahead of the 28-day deadline.
Their loans cater to individual needs, and their team of professional advisors provides expert guidance throughout the process.
With loans ranging from £250,000 to £2 million and up to 70% loan-to-value (LTV), Blue Square Capital is here to help you secure your dream property.
To explore quick loans with Blue Square Capital get in touch with the team today at [email protected]
