Bridging can be very useful for your clients who buy at auction, says Guy Garrard, head of business development at Tiuta.
It has been estimated that around 300,000 properties are sold at auction every year. Of course buying property at an auction is no new thing. It’s an activity that has been around for many years mainly involving professional investors, landlords and developers. But the past decade or so has certainly seen an increase in the ‘amateur’ involvement in the auction process.
It is the variety of properties and land that come up for sale at any one auction which largely satisfies the requirements of many types of potential purchaser. And it’s fair to say that the lure of a bargain continues to draw those who may be looking to buy a property in need of renovation for an onward sale or investment. As a result the popularity of the auction process continues to rise.
Auctions are often used by lenders to sell repossessed properties, as well as by developers, investors and owner occupiers who need to achieve a quick sale. The attraction of the auction process for vendors is that it can offer the certainty of a contractually binding sale on a specific date. Although a key benefit of auctions is the speed of completion – contracts are exchanged immediately and completion is usually within 14 to 28 days – financing the deal can pose problems. Mainstream mortgage providers continue to be inflexible in their ability to accommodate such short timescales especially in the current financial environment. Although pre-auction mortgages are available they inevitably incur additional expense in the absence of security.
It is often the case that many auctioned properties are in need of some strong levels of investment in order for them to reach a habitable state. With lenders more likely to place a retention on the property, this can place a stumbling block in terms of getting the necessary finance in place for completion.
This is where one of the many uses of bridging finance continues to fit into the equation. There are a number of short term finance specialists that can give the auction buyer access to a funding package to ensure the process is a simple one. As previously alluded to, buying at auction usually means having to operate within very limited timeframes and a bridging loan can help facilitate this process to allow the successful bidder to complete within the required period of time. Bridging finance will allow the buyer to complete the transaction within such tight timeframes until they get their long-term finance in place or simply bridge the gap if their arranged funds fall short of their final bid. This will allow potential purchasers to attend the auction in the knowledge that funds, subject to valuation, are available to seal the purchase. A deposit is required on the day of the auction itself but funds could be in place within 24 hours to ensure the completion of the property transaction can be made.
Of course bridging finance may not the best route for everyone but it does provide a valuable option for those looking to secure short term funds quickly to combat the prospect of losing the property or deposit. Such administrative delays will inevitably prove frustrating and ultimately cause a great deal of extra time and expense to the purchaser. So if brokers have a client looking to buy at an auction it is worth fully evaluating the bridging option and to engage the loan provider to see what options might be available. It could not only help the client in question secure a particular property at a knock down price but also provide a good source of incremental income for the broker.
