Bridging loans are a useful facility for buying property at auction
Bridging loans are very fast to arrange and normally take between 5 and 10 days to put in place, although in some circumstances a bridging loan can be put in place in as little as 24 hours!
As a means of short term finance, bridging loans are often the best option as many bridging facilities do not have early repayment charges or redemption penalties.
But why would any one require finance for a short term period? There are many occasions when short term finance is required, and on these occasions bridging finance is a often a much better option than raising money using a long term finance facility that will be repaid very early. The reason why bridging loans are better is that long term facilities often have high set up costs or expensive early redemption charges that make the whole cost of borrowing the required funds this way an expensive option over the short term.
Bridging loans may have a more expensive monthly rate of interest than long term finance facilities, but the whole point to them is that they are a sort term facility so there won’t be many expensive monthly interest payments charged! Bridging lenders want their money back as soon as possible in order to lend again to another customer. A long term facility charges higher set up costs and early redemption penalties because their money is to be used over the long term. Bridging lenders often charge less to set up and redeem but the same money is set up and redeemed far more often.
People who buy properties at property auctions often use bridging loans to raise the finance required to complete the purchase. The reason why a bridging loan is popular for this is because having made the successful bid at an auction the successful bidder is required to pay a deposit on the day and the balance within 28 days otherwise they may lose their deposit and the property. Because bridging loans can be arranged quickly they are a safer way of having the funds in place in time to complete the purchase with the required time frame.
Having completed the auction purchase the owner will turn their attention to what they are going to do with the property and how they are going to repay the bridging loan secured on it. When property is purchased at auction they are often quickly sold on for a profit, in which case once the sale completes the bridging loan will be repaid. Alternatively the property could be remortgaged and added to a property portfolio, meaning the funds raised from the buy to let mortgage facility, or commercial mortgage, will be used to repay the bridging loan. Often property purchased at auction maybe in need of restoration or some minor renovation. The work will be completed and they the property will be sold for hopefully an increased profit or remortgaged to repay the bridging finance.