Bridging loan

[Mia2023]

Hello all

Looking to purchase a property from auction that isn't mortgageable and have reviewed my funding options and currently have two: bridging loan and auction finance. Both with the exit strategy to get a mortgage to pay it off once renovations are complete.

Does anyone have experience with any of these and any advice before I go ahead because I'm new to these lines of funding, and a bit apprehensive.

Thank you

 

[motorbiking]

I have experience of buying from auction and a lot of the time its not just the building that is in a mess, its the deeds too.

Can you share why the property isn't mortgageable?

 

[Murdochcat]

What are the interest rates on the loans and how much would the monthly payments be?

 

[Mia2023]

Oh right okay I didn't know that. The property doesn't have a standard roof type so it was assumed that lenders will refuse due to the longevity of it.

Term wise/interest, I haven't yet got to that point. Purely the research stage, reviewing whether it's a viable option buying the property of not. Had heard of these two funding methods due to my own capital being little, and wondered if anyone knew more about them.

 

[diy_fun_uk]

https://www.moneysavingexpert.com/loans/bridge-loans/

 

[Murdochcat]

Oh right okay I didn't know that. The property doesn't have a standard roof type so it was assumed that lenders will refuse due to the longevity of it.

Term wise/interest, I haven't yet got to that point. Purely the research stage, reviewing whether it's a viable option buying the property of not. Had heard of these two funding methods due to my own capital being little, and wondered if anyone knew more about them.

If you have little capital how can you afford the work to bring it up to (presumably) letting standard?

 

[motorbiking]

Oh right okay I didn't know that. The property doesn't have a standard roof type so it was assumed that lenders will refuse due to the longevity of it.

Term wise/interest, I haven't yet got to that point. Purely the research stage, reviewing whether it's a viable option buying the property of not. Had heard of these two funding methods due to my own capital being little, and wondered if anyone knew more about them.

The problems you need to factor in are these:
- You will be bidding against cash buyers.
- Your loan will carry high interest if you don't have equity/capital to secure it against.
- You will need to factor in buying and selling costs, time on the market, cost to do up and apply a risk factor if things go wrong.

 

[Notch7]

I have experience of buying from auction and a lot of the time its not just the building that is in a mess, its the deeds too

I’m guessing that buying from an auction means you skip all conveyancing, so any legal issues, land disputes, planning and building regs violations, sewer issues, gas, electric services etc are all unknown risks.

There would have to be a heavy discount on the price to offset those risks

 

[motorbiking]

Yep. Sometimes the property needs to be separated from another title o might even be the subject of enforcement action.

 

[martygturner]

I’m guessing that buying from an auction means you skip all conveyancing, so any legal issues, land disputes, planning and building regs violations, sewer issues, gas, electric services etc are all unknown risks.

There would have to be a heavy discount on the price to offset those risks

that's not strictly true, I have bought many properties from auctions, it depends on the quality of the legal pack which surprisingly is part of the contract for sale, if their is an error in that pack then you can reject the property within the completion terms ie 30 days. In general I have found legal packs to be much better than the disclosure after agreement that happens with the more traditional sale.

Most auction houses return deposits if a legal pack is materially incorrect, we pulled out of a sale when the beneficial owner was disguised, person x said they owned it, but in fact a company owned it of which they were a director.

Auction houses that don't are very few and far between, there is one in Wales that has a buy on the hammer but all their stuff is at the really cheap end and you are buying a plot rather than a house and even they tell you up front you are just buying the title.

Personally I would just do the maths, if you can buy a house at say 25% under market for being un mortgageable and it costs 15% to make it mortgageable then there is a 10% profit baked in.. some of that profit will be lost due to higher finance costs initially but that shoves the onus on you to get it sorted.

There are all sorts of finance out there...and all sorts of agreements.. Hanson do a split ownership arrangement whereby they lend and 50% of the property becomes theirs which you buy back at market rate once it can be lended on. Interest on that is Bank base rate plus 2%.

It all depends on how much risk you want... plenty take on more risky stuff then just do a gut then flog on, you would be amazed what a manky s hole cleaned up and made ready for rework goes for. A set of three terraced house we tracked un loved and uninhabited in Ebba vale sold for 54k, after a demolish and planing sold for 472k as a plot with full planning for 5 houses. Total cost were probably in the region of 100k including purchase.

 

[motorbiking]

All valid. One trick is to publish a "draft" auction pack and then revise it the day before.

 

[noseall]

that's not strictly true, I have bought many properties from auctions, it depends on the quality of the legal pack which surprisingly is part of the contract for sale, if their is an error in that pack then you can reject the property within the completion terms ie 30 days. In general I have found legal packs to be much better than the disclosure after agreement that happens with the more traditional sale.

Do you get to read the legal pack, prior to auction day?

 

[blup]

Bridging finance is expensive and doesn't guarantee a mortgage, just a nice return for the lender. Do your homework on the property. not all legal rights are on the deeds, and building control records won't form part of the deed pack. You can do your own local search through specialist companies if the deeds pack is lacking or questionable on things like planning. Likewise land registry deeds. That said you may not have a comeback if you know too much. Its down to instinct, assuming the finance lines up

 

[motorbiking]

The knowing too much would only be relevant if you were arguing fraudulent or negligent misrepresentation. Otherwise the more you can find out the better.

 

[martygturner]

Do you get to read the legal pack, prior to auction day?

Yep, its generally available at listing so gives 2 months ish before sale date to do extra enquiries, normally they include all the basics, searches, title, etc etc, sometimes there is a small charge £60-100 but that covers pre sale questions to the sellers solicitor, normally those are have no plot map registered and the solicitor agrees the boundaries or are estate sales where the solicitor is acting on behalf of the estate or a council or crown, they are not allowed to run up costs for a dead persons estate.

As for problems with title , planning, building control, all auctions offer indemnity insurance, Chancel repair liability can still be a problem but at £50 insurance rate its hardly worth not taking it out anywhere in the home counties.