Buying at auction can be a brilliant way to pick up property at a good price, but the trade-off is speed. Once the hammer falls, you usually pay a 10% deposit immediately on the day, then you have around 28 days to complete. If your funding fails, you risk losing the deposit and also the property! That is where bridging finance steps in.
In this guide, I explain how bridging loans work for auction purchases, when they are a smart move, and how to use them well so you can bid with confidence.
Why property auctions require fast finance
You exchange contracts the moment you win the bid. A deposit is due immediately, and completion is commonly set for 28 days. Standard mortgages take longer to approve and draw down, so they really aren’t suitable. Miss that deadline, and you could lose your deposit and also face additional fees on top. This means having the right finance lined up before you raise your paddle is essential.
What is bridging finance for auctions?
A bridging loan is short-term, but it’s also a secured loan, and it’s designed to get you from A to B quickly. It provides fast funds so you can complete the purchase. You then repay the loan once your longer standard term finance is in place, or once you sell the property.
Key features include fast decisions and drawdown, flexibility on property types and condition, and ‘rolled up interest’ – so there are no monthly payments with typical terms of up to 12 months. It’s essential that your exit strategy is planned and in place from day one.
When bridging finance is the right move
Bridging is useful when you need certainty of funds within a tight completion window. It also works well for properties that are un-mortgageable due to their condition or title issues. Investors and developers often use bridging to move fast, secure the asset, add value, and then refinance or sell. Bridging is expensive, but it’s often looked on as a silent partner, and no partner works for free.
The main advantages of using bridging at auction
Speed, flexibility, and opportunity. Bridging gives many the chance to secure auction lots that others cannot proceed with, which means it fits well with refurbishment and fast refinance strategies. When used properly, it can become an essential tool for anyone involved in buying & selling property.
Things to consider before choosing a bridge
Bridging loans can be expensive and are designed for short-term use only. Always have a realistic exit plan. If you cannot repay on time, extra fees and default interest may apply, and your property dreams will soon turn into nightmares!
How to use bridging finance successfully at auctions
Set your budget carefully, get all the options checked with an experienced broker like myself, and confirm your exit plan. Have your team ready to go. This includes, alongside your broker, a very good solicitor who’s experienced in auction purchases, a valuer, and a contractor to take care of the works. This should enable you to bid with confidence knowing your funding is secure, and that your A-Team is ready to GO!
FAQs
How quickly can I get a bridging loan for an auction?
It depends on the property and legal work, but when everything lines up, funds can be arranged quickly.
Do I need a deposit when using bridging finance?
Yes. Lenders require a deposit, though exact amounts vary. Typically, 25-30% will be required.
Can I use bridging finance if I have bad credit?
Some specialist lenders may still help, especially if the exit strategy is strong.
What happens if I cannot repay the bridging loan on time?
Default interest and charges may apply, and the lender could enforce the security.
Always remember, your home or property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. Bridging finance is a specialist product and not suitable for everyone. Always seek tailored advice for your situation.
Get expert bridging advice in Essex
My name is Ian Smith and I’m an Essex-based mortgage and bridging advisor who covers the whole of the market. I’ve worked with many buyers across Essex and the South East who want to secure auction properties quickly and sensibly. I have access to a wide range of lenders across bridging and standard buy-to-let lenders. That means I can help you compare options, structure your exit, and keep your timeline on track.
Get in touch to book an appointment. Any questions can be answered, and remember, no question is too silly to ask. Always get advice on short-term borrowing because the risks are high. Loans can be expensive when they’re not paid back, so having the right plan from the start is vital.
