Your Guide to Bridging Finance for Auction Purchases
Buying a property at auction can be an exciting way to secure a great deal, whether for renovation or investment. However, securing finance within tight timescales is often a challenge. This is where bridging finance comes in. Whether you're a first-time auction buyer or a seasoned developer looking to move quickly, bridging finance can be a powerful tool.
Michael Allison, spokesperson at Roma Finance, explains: "Bridging finance is a great solution for auction buyers who need to complete quickly. It offers speed and flexibility, ensuring buyers don’t miss out on an opportunity, even if the property needs work before it’s mortgageable."
Why Buy at Auction?
Buying at auction can provide excellent investment opportunities. Many properties are sold at below market value (BMV) prices, offering strong potential for resale profits or rental income.
Another key benefit is speed, as once a bid is accepted, contracts are exchanged immediately, avoiding property chains. However, buyers must complete the purchase within a set timeframe (often 28 days, although this can vary). If completion deadlines are missed, the buyer forfeits their deposit and could be liable for any losses if the property is resold.
How Bridging Finance Can Help
Traditional mortgages usually aren’t an option for auction purchases because of the short completion window. On top of that, some properties may be considered "unmortgageable" due to factors like poor condition, structural issues, or legal complications.
Bridging finance provides a fast, short-term funding solution, allowing buyers to complete their purchase on time. Bridging loans typically last 12 to 24 months, giving time for refurbishments before refinancing to a traditional mortgage or selling the property.
For example, an investor buying a three-bedroom house needing major refurbishment could use a bridging loan to complete the purchase, carry out works, and refinance onto a buy-to-let mortgage once the property is habitable.
Roma Finance offers loans up to 75% of the auction purchase price, with staged payments available to assist with renovation costs.
The Risks of Bridging Finance
It's important to note that whilst bridging finance offers speed and flexibility, these loans are more expensive than traditional mortgages. Delays in completing your refurbishments or refinancing could increase costs. However, by having a clear exit strategy from the outset and working with an experienced lender, you can mitigate these risks.
Your Step-by-Step Guide to Auction Finance
Plan Your Finances Before You Bid Explore your finance options and secure an agreement in principle for a bridging loan. This will allow you to bid with confidence.
View the Property and Do Your Research Always view the property before bidding. If it needs work, take a builder to assess any issues such as fire damage, structural concerns, damp, or mould. Additionally, research comparable property values in the area. Understanding the "done-up" value will help determine your maximum bid.
Review the Legal Pack Carefully Download the legal pack in advance and go through it with your solicitor. Check for any restrictions, title issues, or outstanding charges. Also, factor in additional costs payable at exchange, such as:
The buyer’s premium (a fee charged by the auction house)
Seller’s legal pack fees
Stamp duty, and being aware of additional tax rules that apply to certain property purchases
Council tax and utility standing charges, which must be accounted for, especially for vacant properties
Budget for Refurbishment Costs If the property needs work, estimate the renovation costs and create a schedule of works. This will help with budgeting and securing additional funding if needed.
Auction Day Preparation Ensure you have:
Proof of ID
Immediate access to funds for the 10% deposit
A clear understanding of the financial commitments involved
After Winning the Auction, Act Fast Once you have won, you must move quickly to secure funding. Bridging lenders will need to review your credentials and the deal itself, so do not delay.
Submit Your Bridging Loan Application Your application will require:
The signed sales agreement
Proof of purchase and deposit funds
A link to the auction property listing
A costed refurbishment plan (if applicable)
Buyers should also be prepared to pay valuation and legal fees upfront. Lenders like Roma Finance can often assess and approve applications on the same day for straightforward cases.
Valuation and Loan Approval Once the lender completes their valuation, they will finalise and approve the loan.
Completion and Release of Funds Once the legal checks are done, the lender will release funds, allowing you to complete the purchase within the required timeframe.
Post-Completion Considerations After purchase, lenders like Roma Finance continue to provide support. They track renovation progress to help ensure a smooth transition to either a long-term mortgage or property sale.
Choosing the Right Lender Not all bridging lenders are the same, so it is important to choose one with the right expertise to support your auction purchase. When selecting a lender, consider the following:
Speed – Your lender must be able to make quick decisions and release funds within weeks to meet the auction deadline. Ask them upfront about their typical processing times for auction purchases.
Experience – Choose a lender with expertise in auction purchases. Lenders who understand the pressures of auction timescales and refurbishment projects are better equipped to overcome potential challenges quickly.
Service – Communication is key. Look for a lender who provides regular updates throughout the process, offers clear points of contact, and gives you direct access to an underwriter if needed. This can make a significant difference if any issues arise during the transaction.
Final Thoughts
Bridging finance is a vital tool for auction buyers who need fast, flexible funding. By working with an experienced lender like Roma Finance, you can confidently secure your property and meet completion deadlines without stress.
As Michael Allison of Roma Finance puts it: "Bridging finance ensures auction buyers don’t miss out on opportunities due to slow funding. With the right preparation and lender, you can complete your purchase smoothly and make the most of your investment."
Website: Instagram: roma.finance LinkedIn: Roma Finance
Questions to Ask Your Bridging Lender
What’s your typical processing time for auction deals? Ensure they can meet the fast pace of auction transactions.
How experienced are you with funding properties in need of refurbishment? A lender with renovation experience can provide smoother, more flexible support.
What’s your process for handling delays or complications? It’s important to know how quickly they can resolve potential issues.
Are there any upfront costs, such as valuation or legal fees, that I should be aware of? Avoid unexpected expenses along the way.
Can I speak directly to an underwriter if I need to? Direct access to decision-makers can make all the difference when time is tight.
