The Role of Bridging Loans in Financing Auction Property Purchases

Posted by Market Financial Solutions on 28th February 2022 -

The value of properties sold via auction has risen sharply in recent years. The UK has, experts proclaim, “caught the property auction bug.” However, investing in real estate in this way is not always easy. So, we have taken a deeper look at:

• Complications in financing auction property purchases
• Why people invest in properties through auction houses
• The role of specialist finance
• Repaying your bridge lender

Rising popularity of auctions

Data from last year showed a notable increase in the number and value of properties sold at auction in the UK. For example, Savills announced that it had more than £240 million worth of properties at auction in the first ten months of 2021. That was 40% more than the same period in 2019.

Subsequently, the company Auction House oversaw the sales of properties worth a combined £65 million in October last year – a record for a single month. Meanwhile, auctioneer John Pye Property recorded a 52% uptick in the number of bidders taking part in its auctions between May and October 2021.

Source: The Guardian

Why do people invest in property at auctions?

There are several reasons why people in invest in property at auctions. One factor driving this trend is the rise of online auctions. This has meant people can still participate in the events even despite Covid-induced lockdowns, social distancing restrictions or fears of catching the virus. By moving the auctions online, it becomes easily accessible for investors and homebuyers. This not only drives activity upwards, but also the potential to increase the average spend. Online auctions can last for longer periods of time, opening the door to bidding wars.

“Anybody can just log on and watch the auction,” says Charles Lovell, head of Auction House Robinson & Hall. He also accredited TV shows like Homes Under the Hammer with having made the concept of investing in property at auction “more mainstream”.

Generally, as the wider property market thrives – so do auctions. The Office for National Statistics revealed recently that average UK house prices increased by 10.8%, or £27,000, in 2021. This has inspired many property investors and homebuyers – with many turning to auctions.

There are other attractive features of property auctions. Speed being one of the most fundamental features. Due to time constraints imposed by auction houses, purchases often complete in as little as a month. This fast-pace is a great attraction to property investors looking to purchase quickly and -more often than not – cheaply. However, we talk more on this below.

Auctions are also often the destination of choice for those selling run-down properties and probate homes. For investors seeking a property refurbishment or renovation project, auctions are a good place to look.

Guide to property renovations

Financing auction purchases

Whether the volume of auction deals in 2022 can match the record figures of last year remains to be seen. However demand for property is still extremely high in the UK, and auctions are expected to continue to attract plenty of interest among would-be buyers.

Those heading to auction – physically or virtually – must be prepared. Not only should they thoroughly research potential lots going under the gavel, but they must also consider how they would finance an auction purchase.

The deadlines are tight. Typically, to complete an auction purchase, the successful bidder must pay for the property within a certain timeframe, often 28 days. This leaves insufficient time, in most instances, to arrange a traditional or buy-to-let mortgage.

That is why bridging finance has a key role in supporting auction purchases. We can arrange a bridging loan in as little as three days, allowing an auction buyer to meet the tight deadlines imposed.

Prepare your finances in advance

Still, even with the quick turnaround in delivering a loan, we would always encourage those buying at auction to arrange their financial solution beforehand.

Confidence in your financial situation and knowing how much you have available to you, is a great starting place. If your finances are in place before the auction, it will decrease the risk of the purchase falling through, which would result in the loss of your deposit.

Visit our auction bridging loans page to find out more about the products we have to offer. It also provides some useful advice for those buying at auction.

Don’t know where to start? Our Guide to Property Auctions is a great starting point, covering:

• Things to consider when looking at lots
• Preparation tips before the auction day
• What you can expect on the day of the auction
• Completing your auction purchase

Bridge to exit

If you are considering utilising auction bridging loans to support your auction purchase, it is key to first think about how to intend to exit your bridging loan. Whilst we remain bridge lenders, we have also recently stepped into the buy-to-let sector to provide a specialist buy-to-let mortgage product.

This product is available to clients who are looking to purchase assets or refinance short-term loans such as bridging finance.

Common exit strategies

• Refinancing through traditional finance
• Selling the asset in question
• Repaying it in cash – whether from inheritance, the sale of another property or through investment funds

Looking for inspiration? Read our top 5 most common exit strategies to find out more.