Why do people opt for auction bridging finance?

Friday, 20 January 2012 03:56

Bridging finance could be the answer

Bridging finance could be the answer

One of the unfortunate consequences of the economic downturn has been an increase in the number of people having their homes repossessed due to the fact they can no longer keep up with their mortgage repayments.

While this is undoubtedly a very distressing development for those who find themselves in this situation, it presents an attractive opportunity for you.

Many homes that are reclaimed by lenders are put up for sale at auctions, meaning you can potentially secure a property below market value.

But what if you do not have the funds to acquire a property at auction? Not every buyer has cash reserves to call on but nevertheless participate and buy at auctions. The way many do this is with bridging finance.

Bridging loans are products you may or may not be familiar with. They are loans designed to address short-term funding needs and can be an attractive avenue for those who need to raise a lot of money quickly.

As with any financial product, you need to fully understand what taking out a bridging loan entails. Interest rates are typically higher than with traditional loans and most lenders will expect their money back within 12 months.

Purchasing properties at auction is one of the most popular uses for bridging loans and if you are keen to take advantage of the opportunities auctions present, they may represent a good way forward for you.

If you have found a property at auction that is perfect for you or you feel has potential to be developed into an attractive place to live, a bridging loan can provide you with the funds to buy it.

A bridging loan company will be happy to overlook a chequered credit history, your income or debts you have provided you have some form of collateral against which the loan can be secured.

This takes the form of a property in most cases and if you own your own home, you can use it as security. In addition, you can use the home you are keen to bid for as collateral as well.

That way you can obtain the money you need, purchase the property in question and carry out any work you feel needs to be done.

Once you have renovated the house, the next task is to sell it. In the current economic climate, that may prove difficult, so you need to take this into consideration when making a decision.

Not everyone who uses bridging loans to buy properties at auctions is an experienced developer. Some are first-time developers, speculators or those who have simply identified an opportunity that is too good to pass up.

So if you are a first-time property developer, a bridging loan can give you the platform to grow your new venture and generate tidy profits.

Bridging finance is not for everyone, however. It is essential that you have a credible exit strategy otherwise bridging loans can prove to be very expensive.

It may benefit you to seek advice on bridging loans before you take one out. They will be able to explain the pros and cons of these products and advise you as to whether there are better options on the table.

Property auctions offer you some great opportunities and it would be a shame to miss out. With bridging finance, you do not have to.



blog comments powered by Disqus

Finance articles

  • Is a bridging loan right for budding entrepreneurs?

    Raising the money you need to start a business can be hard, however, there are alternatives to bank loans. Among them are bridging loans, peer-to-peer lending and borrowing money from friends and family, meaning you need to do plenty of research.

  • Important questions to ask bridging loan companies

    Before taking out a bridging loan, you must understand a number of key points. These include the rate of interest you will be charged, the length of time you have to repay the loan and whether there are any arrangement fees that apply.

  • Why bridging loans are only suitable for short-term funding

    You should only consider bridging finance if your funding needs are temporary. This is because the high rates of interest make bridging finance unsuitable as a long-term solution, so if you have long-term needs, you should look at other options.

  • Banks vs. specialist lenders – which bridging loans are best?

    Both banks and specialist bridging loan companies can provide the bridging finance you need, meaning you need to compare products from a range of providers. You need to look at factors such as interest rates and arrangement fees.

  • Can bridging loans work for those who only need small amounts?

    Some bridging loan companies will lend up to £5 million if you have sufficient equity in your home, however, what if your borrowing needs are more modest? If you need a sum of £10,000, bridging loans can still be an option.

View More Articles

Related stories

Cameron hails Help to Buy a success as 2,000 sign up

The Prime  Minister says Help to Buy is a success

The Prime Minster, David Cameron has said the Help to Buy scheme is being accessed by the "hardworking people" it is aimed at but critics warn a lack of supply may push up prices.

What are enhanced annuities?

What are enhanced annuities?

Enhanced annuities could boost your pension income by as much as 40 per cent

6,000 new homeowners through Help to Buy

David Cameron says Help to Buy has unlocked mortgage finance for 6,000 households

The government claims 6,000 households have purchased new homes through the Help to Buy scheme in the first three months of its existence.

MPs ask for clarity on Bank's role in policing Help to Buy

The Treasury, where MPs questioned Bank officials over Help to Buy

MPs on the Treasury Select Committee have asked for clarification on the role the Bank of England's Financial Policy Committee has in policing the Help to Buy scheme.

How to have a richer retirement

How to have a richer retirement

Award-winning personal finance journalist Rosie Murray-West has contributed a chapter on how to have a richer retirement to a new guide from retirement specialists McCarthy & Stone.

Valuation for secured loans – Your questions answered

Valuation for secured loans - Your questions answered

You can free up the value of your assets without having to sell them.

Cable warns Help to Buy could create house price bubble

Vince Cable has warned the Help to Buy scheme could create a house price bubble

The Business Secretary has warned that the government's Help to Buy scheme could create a house price bubble in some parts of the UK.

UK property asking prices down by £6,000 in November

Rightmove said asking prices fell in November

The latest report from online property site Rightmove shows that average asking prices for UK property fell by 2.4 per cent, over £6,000 in November.

Newsletter sign up


In addition to the weekly newsletter, which areas of finance would you like to hear from us about:

Tick this box if you would like us to send you promotions from carefully selected third parties.

By signing-up you agree to the terms of use and privacy policy.

sign-up button

Get the latest information on: