In this guide, we’ll cover everything business owners must know about wielding bridging loans when hunting auction properties.
Buying a property at auction is an opportunity to purchase pre-loved properties well below the market value. Recently, the UK has experienced a boom in property purchases as businesses step in to take advantage of sudden opportunities.
According to the latest stats, the overall UK auction sales rate is 77.4%, indicating a high demand for this sales channel. The downside is that it favours businesses with substantial cash reserves or the ability to secure funding quickly - this is partly why commercial bridging loans have become so popular.
Today, we’ll cover everything business owners must know about wielding bridging loans when hunting auction properties.
Can you get a bridging loan for an auction property?
Businesses can obtain bridging loans for auction properties. It’s one of their most popular uses because traditional forms of financing, such as conventional bank loans, cannot be approved quickly enough for auction purposes.
Lenders offering bridging loans for auction properties prioritise fast turnarounds to enable businesses to move from catalogue to purchase in a matter of weeks.
How purchasing an auction property using bridging finance works
Auction property purchases operate on different terms than other types of residential or commercial property transactions. When your bid has been approved, you have 28 days to complete the purchase in full.
It’s this tight deadline that complicates matters because most businesses don’t have enough liquidity to secure these purchases. For example, the average commercial property lot size in 2023 was £480,000. Do you have this type of money ready and waiting for auction?
The chances are the answer is no, which is where bridging loans come in useful. With their quick turnaround times, it’s about the only form of large-scale financing capable of fitting an auction context.
Simply put, you get approved for your loan, complete the auction property purchase and then sell the property or refinance into a traditional mortgage.
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Who is eligible for an auction property bridging loan?
Just about anybody can apply for an auction property business loan. Whether you’re a limited company or an individual, you are eligible to apply for one of these financing options. The only caveat is that you must have a clear exit strategy and sufficient collateral to secure the loan against.
For example, if you’re planning to redevelop a run-down property as part of a vast portfolio, all you really need is a property of sufficient value to secure the loan. Show that you have a clear plan for said property and a realistic exit strategy, and you should have no issues getting approved.
Why would you use a bridging loan for an auction property?
Commercial bridging loans are uniquely positioned for use within the world of property auctions. With quick access to funds, more straightforward lending criteria and the utmost flexibility, no better financing option exists for properties purchased at auction.
Here’s why businesses turn to bridging loans to complete their property transactions:
The fact is that there’s no other type of loan that can be processed, approved and disbursed within a 28-day timeframe. Traditional lenders cannot move at this speed, meaning without a bridging loan, you’re stuck with relying on your own cash reserves or missing out on enormous business opportunities.
Bridging finance for commercial auction properties with Hilton Smythe
The UK’s property auction industry has experienced unprecedented growth over the past five years, with residential properties making up 75% of all auction sales. It’s clear that businesses with access to substantial financing stand a lot to gain from auction catalogues up and down the country, but securing financing is easier said than done.
Businesses who work with brokers streamline the process and increase their chances of fast approval, giving them the financing needed to succeed at auction. With more than 35 years of experience, our independent financial advisors are best placed to help you secure the best deals.
Our network of lenders gives our clients access to bridging loan deals that are unavailable anywhere else. To learn more about how Hilton Smythe can support you in growing your business, speak to the team now.