Achieving speed and flexibility with an auction bridging loan

Marcus Dussard, sales director at KSEYE, explores the challenges of buying a property at auction and what products are available to help borrowers who need to move quickly but do not have the funds they need readily available.

Related topics:  Blogs,  Specialist Lending
Marcus Dussard | KSEYE
4th July 2024
Marcus Dussard HTB Hampshire
"The strict timeline in place for buying a property at auction can cause problems if the financing is delayed or not available."

Auction rates in the commercial and residential property markets have seen a return in confidence since the start of the year, with steady interest rates and a stabilising economy cited as the driving force behind growing optimism in the sector.

Figures from NAVA Propertymark’s Q1 Auction Barometer shows the number of lots coming under the hammer rose in the first three months of 2024, with a 58% uplift on available lots seen across all auction types compared to the previous quarter.

This growing optimism looks set to continue over the course of the next 12 months, according to the auctioneering and valuation trade body, with catalogue numbers holding steady and a strong appetite for well-priced properties of all types reported among buyers.

Although buying at auction can be an exciting and potentially cost-effective way of purchasing a property, there are a number of important factors for investors to take into consideration before any bidding begins.

For example, one of the challenges with purchasing a property at auction is that 10% of the property purchase price must be paid upfront by the successful bidder when the auction has concluded.

In addition, the purchase needs to be completed and the full payment made within 28 days of the auction taking place.

Given the fact that many traditional buy-to-let mortgages take longer than this to arrange, the strict timeline in place for buying a property at auction can cause problems if the financing is delayed or not available.

Similarly, a traditional buy-to-let mortgage may not even be an option if the property requires a significant level of work, which can leave the investor at risk of missing out on a potential purchase should the property be deemed unmortgageable by the lender.

It is here that an auction finance bridging loan could prove a useful financial tool in helping borrowers who need to move quickly but do not have the funds they need readily available.

Auction finance bridging loans are designed to be arranged quickly, often within a matter of days, so that the borrower can swiftly complete a purchase. This can prove to be particularly useful in situations where a borrower may be facing time constraints and pressure to complete a purchase.

They work by enabling investors or buy-to-let landlords to take out an auction finance bridging loan against the value of the property being purchased, and use the money borrowed to cover the cost of the property as well as any associated fees such as legal and auction costs or stamp duty. The loan is then repaid when the property is sold or rented out at a later date.

Given the complexity and speed around securing an auction finance bridging loan, it is important that brokers with clients looking to buy a property at auction work with a specialist lender familiar with this area of the market.

Specialist lenders like KSEYE have the knowledge and expertise required to ensure every broker’s client can get the advice and solutions they need within their desired timeframe.

We also understand that no two cases are ever the same, which is why at KSEYE, we use a tailored approach to underwriting to ensure that all auction finance bridging loans are structured to the individual circumstances of each client. We also have an in-house legal team that can help to get deals across the line quickly.

This can help those buyers facing a tight deadline by providing them with the swift and flexible funding they need to purchase a property at auction.

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