Quick tips for buying at auction using a bridging loan
For property purchases made at auction bridging loans are a popular method used to raise the finance required. This is because bridging loans can be put in place quickly which is useful for auction purchases because the normal period in which purchases have to be completed having made a successful bid is just 28 days. In addition quite often property purchased at action may require some improvement or restoration work before it can provide acceptable security to the main mortgage providers. The flexible lending criteria offered by some bridging loans mean that finance can still be arranged when other lenders may refuse or place retention conditions.
Although there can quite often be bargains to be found at auction, it is important not to just turn up and bid on a property that looks quite good to you in the auction catalogue. It is extremely advisable to go and view the property first. Ask the auction house about having a good look at the property. You will find that most properties have viewing times available for group viewings, so this is also a good way of gauging other potential interest in the property. Although surveys cost, it is also a good idea to have a survey carried out on any property that you are intending to make a serious bid.
The auction house will provide you with a copy of the legal pack for any property that you are interested in. There is quite often a small charge for this, but it is again advisable to ask for a copy and give it to your solicitor to check it through. The pack will also detail any special conditions for that property and any additional or last minute special conditions will be mentioned before the start of the bidding for that property on the day of auction.
Decide what price you are happy to pay for the property and limit yourself to that price at auction. Also make sure that you have the funds available before hand, in particular the 10% deposit which will be required having made a winning bid. If you are arranging a bridging loan or other finance facility it is essential to make sure that this is possible before bidding at auction, otherwise you run the risk of losing your deposit if you are unable to complete on the agreed purchase.
If you are intending to buy with a bridging loan and then refinance it later, remember that many lenders have what is known as the 6 month rule. This means that many lenders will not provide a mortgage facility unless it has been owned by the current owner for at least 6 months. This can cause problems when looking to re-mortgage, but can also cause problems if looking to sell within 6 months because any potential purchaser who requires a mortgage in order to purchase the property could be faced with having difficulty obtaining finance within these 6 months. Therefore it is quite normal to require a bridging loan facility for at least 6 months.