Many of the properties that come up for sale at auction can be purchased for exceptionally low prices. Even with less than £50,000 available, you could walk away with something desirable.

But these ultra-low property prices usually come with one major caveat. With most auction properties, the reason they are sold via auction is because they are unmortgageable. These can be purchased outright for cash, but are not considered eligible for mortgages by the vast majority of major lenders.

What is Unmortgageable Property?

A property may be classified as unmortgageable by a lender for numerous reasons. Typical examples of which include properties that do not have a bathroom and kitchen, properties that are not in a fit state to live in and properties that are considered derelict.

Should any major structural problems be found when a property is surveyed as part of the mortgage application process, it may be deemed unmortgageable, and the application declined.

It is even common for homes constructed from non-standard materials, such as timber framed homes to be classified as unmortgageable.

Even where a property is in decent condition and is considered habitable, it can be difficult or impossible to secure a mortgage for less than £50,000; another reason why the vast majority of properties that sell at auction must be paid for in cash, rather than with a conventional mortgage.

How Bridging Loans Can Help

One of the most popular funding solutions for auction property purchases is bridging finance. A bridging loan provides fast access to significant sums of cash to be repaid several months later in a single lump-sum payment.

Bridging loans are secured against properties currently owned by the applicant; typically their home or a business property. The loan can be arranged and accessed within a matter of days, at which point the funds can be used to purchase a property at auction.

The difference being that with a bridging loan the funds can be used to purchase any type of property, including an uninhabitable property.

This makes bridging finance a highly useful facility for investors, who may be looking to purchase dilapidated properties at rock-bottom prices and renovate them for resale. Likewise, homeowners on the lookout for a ‘fixer upper’ could use bridging finance to buy an unmortgageable property, renovate it to their chosen specifications and repay the loan when their current home sells.

How a Bridging Loan Works

Bridging finance can be secured against a variety of valuable assets, though is typically taken out against a home or business property. The full balance of the loan is subsequently repaid in a single lump-sum payment, typically six to 12 months after the loan is taken out.

Interest is charged on a monthly basis – often less than 0.5% – enabling customers to reduce borrowing costs by repaying as early as possible.

Bridging finance is often accessible for those with a poor credit history or no proof of income. Lenders are predominantly interested in the value of the property used to secure the loan, along with the applicant’s exit strategy i.e. their capacity to repay the loan in full.

If you would like to learn more about the benefits of bridging finance or have any questions regarding auction property purchases, contact a member of the team at Bridgingloans.co.uk today.