If you’re eyeing a property at auction, you know that there’s one thing you can’t afford to lose: time. When that hammer comes down, you’ll typically have just 28 days to complete. The other option is losing the property… Plus your deposit.
But here’s the thing:
Traditional mortgages take 6-12 weeks to process. On average.
That’s just way too slow for auction purchases.
So here’s the good news: There’s a whole type of financing built just for this one situation.
In this guide, we’ll explain:
- What Auction Bridging Loans Are
- Why Auction Buyers Need Bridging Finance
- The Auction Bridging Application Process
- The Key Benefits for Auction Property Purchases
What Exactly Are Auction Bridging Loans?
In a nutshell, auction bridging loans are short-term finance solutions used to complete property purchases within a short timeframe.
They’re often called bridging loans because they provide a ‘bridge’ between the point where you secure a property at auction and the moment you can arrange long-term finance.
Examples include traditional residential mortgages.
These are secured loans against the value of the property. They typically last for about 12 months.
Here’s the idea…
You apply for an auction bridging loan, get the funds quickly, complete the purchase and then refinance or sell to repay it.
When buyers need fast access to capital in order to meet the short completion deadlines on auction properties, auction bridging loans provide the speed and flexibility that traditional mortgage lenders can’t match. This makes them a crucial part of the auction buying process.
Did you know…
Bridging Trends data shows that the proportion of auction purchases as part of the overall bridging market grew from 7% in 2023 to 11% in 2024. Bridging remains a popular route for property investors and an increasingly important one in the auction market.
Why Auction Buyers Need Bridging Finance
The auction market has been on fire over the last year.
January 2024 saw a huge 45% increase in available lots compared to January 2023 for example.
Simple maths says more properties = more competition.
And more competition means buyers need to move fast.
In the auction environment, bidding takes place live and in real time. Conditional offers and mortgage approval delays just aren’t an option.
Buyers need to know they can complete… ASAP.
Traditional mortgages just don’t cut it for auction purchases.
They take too long.
The average mortgage process is measured in months. But completion deadlines on auctions typically sit between 14 and 28 days. That mismatch creates a massive problem for buyers who want to use standard finance.
The auction bridging loan fills this gap perfectly. Lenders place primary focus on:
- The property being purchased and its value
- The exit strategy for how the loan will be repaid
- The overall security position
Credit history matters less than when it comes to mortgage lending.
Applications are fast-tracked. Decisions can be made quickly. Funds are released on a similarly rapid basis.
The Process For Auction Bridging Applications
The process for applying for auction bridging finance is actually more straightforward than most people think.
Step 1: Pre-Bid Decision In Principle
Before bidding at auction, the smart money gets a decision in principle from a bridging lender. This gives confirmation of maximum loan amount and key terms.
Step 2: Property Valuation
The lender arranges a property valuation once the property is won at auction. Automated valuation models (AVMs) are now used by many lenders to supercharge this part of the process.
Step 3: Solicitors Complete Legal Work
The solicitors do their legal stuff. Speedy bridging specialists tend to have legal partners that know auction timeframes inside out.
Step 4: Funds Are Released
Funds are released in a hurry, directly to complete the purchase before the deadline.
The whole process can be very, very quick. According to industry data, average completion times for bridging loans reduced by 23% in 2024, coming in at around 47 days. Auction-specific cases are often completed in less time due to the need for urgency.
Some bridging lenders can release funds within 5-14 days when all documentation is ready.
The Key Benefits of Auction Bridging For Real Estate Transactions
Auction bridging offers several benefits for property buyers that traditional mortgages struggle to match.
Speed of Completion
No prizes for guessing what this one is about. Bridging loans complete in days and weeks. Mortgages take months. The speeds auction purchasers need are just not in the realm of traditional lenders.
Flexibility on Types of Property
Auction properties often come ‘as seen’. Meaning work may be required. And work may lead to structural issues or lack of facilities that render a property unmortgageable.
Bridging lenders view the world a little differently. Current condition is just one factor in the valuation process. The end value after work is another. It’s no surprise then that bridging loans are so often used for property purchases at auction.
Chain Free Purchasing
Traditional mortgages force buyers into chains. Bridging finance liberates buyers. Funds can be advanced whether or not the buyer’s existing property has sold.
Eliminating chain-dependency means that bidders at auction can bid with confidence. Knowing finance is in place without worrying about existing chain elements that may fall through.
Investment Opportunity Capture
are often great value. But that value evaporates quickly.
Arranging bridging finance in advance means that when the right opportunity comes along, investors can move quickly. Hesitation at auction is hesitation lost to quicker bidders.
Let’s Take A Moment To Understand The Costs
There’s no escaping the fact that bridging loans are more expensive than traditional mortgages.
Interest rates tend to range from 0.5% to 1.5% per month on average. Fees are higher. Valuations and legal costs are extra.
But then remember…
The cost of bridging is often significantly less than the cost of losing a property at auction. Deposit lost. Investment opportunity gone.
Costs work out as excellent value when thought about like that.
Exit Strategies Are Crucial
Every bridging loan requires an exit strategy. The exit strategy is how the loan will be repaid at the end of the term.
The most common exit strategies for auction bridging loans are:
- Refinance to a standard mortgage once the property is in mortgageable condition
- Sale of the property after refurbishment or development work
- Cash injection from other assets sales or business profits
Exit strategies are the most important aspect of the lending process in the eyes of bridging lenders. If they’re realistic and achievable, approval chances are good and interest rates competitive.
Conclusion
Auction bridging loans answer a fundamental timing problem in real estate transactions.
Speed is required to meet the tight deadlines of auction purchases. Flexibility is needed to make the most of investment opportunities and manage the risks of the auction process.
Auction bridging provides both.
The key takeaways:
- Auctions require 28-day completion deadlines in most cases
- Mortgages just take too long
- Bridging loans can complete in days with the right urgency
- Exit strategy is the most important factor in the lender’s mind
- Costs are higher but often worth it for securing opportunities
The auction property market is not slowing down. Buyers who are savvy about their financing options will position themselves for success.
Buyers who don’t? Lose deposits and lose opportunities.
Auction bridging finance bridges the gap.
