Short-Term Finance for Property Auction Purchase

• Client: UK national looking to expand an existing buy-to-let portfolio
• Property: Three flats on one title purchased at auction for £300,000
• Challenge: Required urgent short-term finance after a surveyor issue disrupted the purchase process
• Finance: £160,000 auction bridging loan at 53.3% LTV, charged at 0.58% per month over a 12-month term

Buying property at auction can provide investors with opportunities to acquire assets at attractive prices, but the process comes with strict timescales. Buyers typically need to have their funding arrangements in place quickly, meaning delays at any stage of the transaction can create significant pressure.

Enness was approached by a UK national looking to expand their buy-to-let portfolio through the purchase of a property at auction. The property comprised three flats held on a single title and was purchased for £300,000.

The client had £140,000 available in cash and therefore required an additional £160,000 of short-term finance to complete the acquisition. This represented a loan to value (LTV) of approximately 53.3%.

The client had already committed to the purchase, meaning there was a defined timeframe in which the transaction needed to complete. While the funding requirement itself was relatively straightforward, the process became more challenging when the client experienced an issue with their surveyor.

For an auction purchase, obtaining the necessary property survey is an important part of the financing process. The delay therefore had the potential to disrupt the wider transaction and place additional pressure on the client’s ability to complete within the required timeframe.

Enness used its network of professional contacts to help address the issue with the surveyor while simultaneously progressing the financing requirement. This meant that the survey and funding elements could be managed alongside one another rather than waiting for one part of the process to be resolved before beginning the next.

Given the urgency, Enness approached private banking contacts familiar with short-term property finance and the requirements associated with auction purchases. Having established relationships with lenders meant that the application could be presented efficiently, with the relevant information provided from the outset.

The resulting auction bridging finance provided the client with the £160,000 required to complete the purchase. The facility represented 53.3% LTV and was arranged at an interest charge of 0.58% per month over a 12-month term.

An exit and refinancing route was also established as part of the arrangement, providing the lender with a clear route for repayment at the end of the short-term facility.

The relatively modest LTV and the client’s substantial cash contribution were helpful factors in the application. However, the key challenge was the speed required to complete the transaction after the surveyor issue disrupted the original timetable.

The case demonstrates how short-term bridging finance can provide a solution where an auction purchase needs to proceed within a defined timeframe. The ability to identify suitable lenders quickly, understand their requirements and coordinate the wider transaction can be particularly important where unexpected issues arise.

For investors looking to purchase property at auction, specialist auction finance can provide access to short-term funding where a conventional mortgage may not be able to meet the required timescale. Any borrowing remains subject to lender criteria, valuation, affordability and a suitable exit strategy.

Disclaimer:
This case study is for illustrative purposes only and does not constitute financial, legal, tax or investment advice. Finance is subject to status, underwriting, affordability, valuation, property suitability, lender criteria and an appropriate exit strategy. Terms, rates, LTVs, fees and availability may vary depending on individual circumstances.

Risk Warning:
Property securing finance may be repossessed if repayments are not maintained. Bridging finance is short-term borrowing and can carry higher costs than conventional mortgage finance. Borrowers should have a clear and realistic exit strategy and should consider the risks associated with auction purchases, property values, refinancing, delays to completion and changes in lending conditions.