How to Finance When Buying a Property At Auction

 In Ask the Expert, Mortgage Schemes

How to Finance When Buying a Property At Auction Mortgage Guardian

How to Finance When Buying a Property At Auction

Q – Auction Finance – I am thinking about buying a property in Walthamstow, London at auction and I need some suitable finance arranged! I am considering buying a house or flat that needs light to medium renovation but I am not sure whether I will keep the property when finished or sell it on. It depends what I decide to do during the renovation period, what the rental income could be and the valuation once finished. I have the money for the deposit and renovation but my bank has said that they would not lend the money to me to buy the house even if I decided to keep the property and rent it out. The property not being liveable from the start is another potential problem followed by the fact that they could not guarantee to lend money at such short notice as I need to complete within 28 days.

How to Finance When Buying a Property At Auction Mortgage Guardian

I have been to a few auctions to get the experience and I have done my research on whether this is profitable for me. I also have my own home which is worth £350,000 with a £70,000 mortgage on it…Can you advise how I can raise finance the best way?

A – You are quite right to do your research before jumping in and buying a property at auction but if you keep your cool you may grab a bargain in the process. Remember that you will be up against professional developers who know the market well and have the finance in place already to buy a property at auction. Also bear in mind that auctions tend to attract the less desirable properties that come with problems or properties that are hard to sell. It is not all doom and gloom as you can often buy a good property quickly without the hassle of being in a chain.

As far as finance goes, one option is for you can take out a bridging loan which is considered short term finance. This type of short term loan does have higher interest rates than normal residential mortgages but you are not tied in for a period of time which allows you to sell the property after renovation. The main advantage of bridging finance is that it can be arranged quite quickly which allows you to purchase when otherwise it might not be possible. This type of finance can take as little as 48 hours to organise but do expect to wait just a little longer than that in most cases. A bridging loan is suitable for auction properties as the auction house will want you to complete on the property within 28 days. This timescale is unlikely if you were to take out either a residential or buy to let mortgage. Once you have renovated the property and sold it you can pay back the loan by exiting the Bridging Loan. If you decide to keep the property you can arrange a buy to let mortgage and pay back the bridging loan. A mortgage will allow you to make repayments over a longer term and also charge a lower interest rate as well as offer you the choice of either a fixed rate or a variable mortgage rate.

Taking out a remortgage on your own home is another option for raising finance but that will need discussing further with our specialist.

We have a dedicated web page for buying a property at auction using bridging finance.

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