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What is a Bridging Loan? A Guide for Auction Buyers.

Property buyers use bridging loans to secure short-term finance. These loans can be arranged quickly and provide a useful ‘bridge’ between buying a property and securing long-term financing. 

For example, buyers of properties with short leases may find it difficult to secure a mortgage. A bridging loan can be used to purchase the property while granting time for an application to extend the lease to be made. 

The main advantages of this financing option are speed and flexibility. Bridging loans are short-term arrangements with periods typically lasting up to 12 months. 

Repayments on bridging loans are usually made at the end of the loan term, rather than by monthly instalments. 

This will include the interest accrued during the period. Lenders may also allow for early repayments without penalties, allowing borrowers to save money on interest payments. 

Why Choose a Bridging Loan?

Bridging loans can be useful to buyers in various circumstances due to their speed, short terms, and flexibility. Examples of when bridging loans can be the right option include:

• Auction Sales – Transactions with tight completion deadlines necessitate access to funds quickly. Auctions have 28-day completion deadlines, so buyers must ensure their finances are in place to avoid losing out on their purchase and their deposit. Bridging loans are regularly available in a matter of days, rather than weeks or months.
• Renovation Projects – It is not uncommon for properties bought at auction to require renovation and improvements before they can qualify for traditional mortgages. This can be particularly important for buy-to-let properties or even homes that would otherwise be unmortgageable. 
• Securing a property – Bridging Loans come in particularly handy when securing an onward purchase before having sold a current property. This can allow buyers to not lose out on a property whilst awaiting the sale of their current home. 
• Properties with Short Leases – Bridging loans can be used to allow time for leases to be extended so that a long-term mortgage can be arranged. 

What are the Risks of Bridging Loans?

Like any loan, bridging loans carry a level of risk. Although they offer the opportunity to borrow large sums of money quickly and with greater flexibility, bridging loans are also secured against an asset. This means that failure to repay on time could result in the repossession of your property. 

Points to Consider with Bridging Loans

• Fees – Bridging loans can come with fees that add to the overall cost of the loan. It’s worthwhile shopping around to find the best deal.
• Higher Rates – Bridging loans are short-term loans with a higher level of associated risk. This means that the fees for these arrangements are typically higher than traditional or buy-to-let loans. 
• Secured against property – Bridging loans are secured forms of borrowing. This means that borrowers will need to put up an asset against the loan. This means that property can be repossessed and lost if the loan isn’t paid on time. 

Talk to the Auction Finance Experts

Ensuring that the right finance is in place when buying at auction can help to achieve property ambitions for all kinds of home and commercial buyers. Speak to our Auction Finance Team who can provide expert guidance tailored to your unique circumstances. Our friendly team will take the time to understand your specific needs, whether you are looking for bridging finance or help with a mortgage to support an auction purchase. After assessing your situation, we can either arrange an appointment with one of our in-house mortgage advisors or refer you to one of our trusted partners to ensure you are supported every step of the way. 

Contact Our Auction Finance Team

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