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How to Use Bridging Loans to Buy Auction Property

How to Use Bridging Loans to Buy Auction Property

Following on from our previous article about property auction finance, here’s a deep-dive into bridging loans where we’ll hopefully demystify the process and debunk a few myths so they won’t be as scary as you might think.

 

Remember: property auctions (for commercial and residential properties) are not just for cash buyers and there’s really nothing secretive or mysterious about them.

 

While some buyers do have enough cash to buy a property without using external finance, every smart property investor knows that the way to maximise the returns from their property portfolio is by using as much external finance as possible to create leverage. Why spend £200,000 cash on a single property, when you can use the money to buy two, three or even four properties by putting down a £50,000 deposit on each one and borrowing the rest?

 

Enter the bridging loan… 

 

Bridging loans are usually short-term loans (typically 6-12 months, but they can be longer or shorter) that “bridge” from one point in time (in this case, the auction day) to a later point in time (for example, after the property has been refurbished and sold, or perhaps refinanced with a long-term buy-to-let or other mortgage loan).

 

Here’s a quick recap of the 5-step bridging loan process when applied to property auctions:

 

1: Browse the auction listings 

2: Find properties you want to bid on

3: Do your research

4: Decide your maximum bid

5: Remember your PLEBS!

 

What are PLEBS, we hear you ask?

 

PLEBS is a simple mnemonic that stands for Purpose (what is the loan for?), Lending (how much finance do you need?), Exit (how do you plan to repay the loan?), Borrower (what’s your background and experience in property investing?) and Security (what is the property and what are your plans for it?).

 

At Clear Idea, we always advise clients to send as much of the PLEBS information to us as early as possible so our lenders can prepare an indicative offer. In practice, most property investors identify auction properties they’re interested in a few weeks before auction day, but that’s not a problem as lenders can generally prepare an indicative loan offer within a few hours. In fact, we were recently able to secure indicative offers for an auction buyer from two bridging lenders the day before the auction took place.

 

If you’d like to find out what happens after the hammer falls and you’re the proud owner of an auction property and how much bridging finance usually costs (rolled-up vs. retained interest), click here to read our bridging loan guide in full.

 

To conclude, bridging loans are particularly well-suited to auction purchases because they are flexible, quick and straightforward to put in place. If you’re planning to buy property at auction, speak to Clear Idea today to discuss how to get the finance in place well ahead of time and on the best possible terms.

 

Call today on 01473 598132 for a free, no-obligation chat or email hello@clearideafinance.com. Good luck and happy bidding!

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Article by Clear Idea Finance Limited

Clear Idea Finance is a fast-growing, independent commercial finance advisory and brokerage business based in Ipswich, Suffolk. With over 25 years' experience in world-class banking and finance, we're the trusted experts for business finance advice. We help business owners, entrepreneurs, property developers and investors secure fast, competitive commercial finance and business loans.

For commercial credit, including acquisition finance, commercial mortgages, property development finance, buy-to-let, business loans, invoice, asset and trade finance, or recovery loans, we’ve got you covered. We can also advise on R&D tax credits. We can help you find the finance you need to grow your business, fund your next project and achieve your goals. Call today!