Understanding Bridging Finance for Auction Properties
Buying property at auction can be an exciting opportunity, but it comes with a unique challenge - you need to settle quickly, often within 30 days. For public servants who haven't sold their current property yet, this tight timeline can feel overwhelming. That's where bridging finance becomes a valuable tool.
A bridge loan is a short term loan that helps you buy before you sell. It provides temporary finance to purchase your new property while giving you time to sell your existing one without rushing. For public servants attending auctions, this type of urgent finance can be the difference between securing your dream home and missing out.
How Bridging Loans Work
Bridging finance acts as a financial bridge between buying your new property and selling your current one. Here's how the process typically unfolds:
- You secure bridging loan approval before attending the auction
- When you win the bid, you have the funds ready for quick settlement
- Your bridging loan covers the purchase while you still own your first property
- Once your original property sells, you use those proceeds to pay off the bridging loan amount
- You then refinance into a standard home loan for your new property
The bridging period usually ranges from a 6 month bridging loan to a 12 month bridging loan, depending on your circumstances and how long you need to sell your existing property.
The Key Benefits of Bridging Finance for Auctions
For public servants looking to buy at auction, bridging loans offer several advantages:
Fast Approval Process: Lenders who specialise in bridging finance understand the urgent nature of auction purchases. Many can provide fast approval within days, not weeks.
Buy Before You Sell: Perhaps the biggest benefit is that you can buy before you sell, meaning you don't need to rush the sale of your current property or move into temporary accommodation.
Seamless Property Upgrade: You can secure your new home at auction and move in before your current property sells, creating a seamless property upgrade experience.
Access to More Properties: Auction properties often represent good value, and bridging finance ensures you can compete effectively against cash buyers.
Avoid Selling First: You won't need to sell your current property under pressure, potentially accepting a lower price just to meet settlement deadlines.
Ready to get started?
Book a chat with a Finance and Mortgage Brokers at Public Home Loans today.
Understanding Bridging Loan Costs and Fees
Before applying for bridging finance, it's important to understand the associated costs:
Interest Rates: The bridging loan interest rate is typically higher than standard variable interest rate home loans, reflecting the short term property finance nature and higher risk for lenders.
Interest Capitalisation: Most bridging loans use capitalised interest, meaning you don't make monthly repayments. Instead, the interest is added to the loan amount and paid when you complete your bridging loan settlement.
Bridging Finance Costs: These include application fees, valuation fees, legal costs, and discharge fees. Expect to pay between $1,500 to $3,000 in upfront bridging loan fees.
Bridging Loan LVR: Lenders typically cap the loan to value ratio (LVR) at around 80% of the combined value of both properties, though this varies between lenders.
The Bridging Loan Application Process
When you're ready to pursue auction finance, here's what the bridging finance application process involves:
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Pre-approval: Contact a specialist mortgage broker who has access to loan options from banks and lenders across Australia. They'll assess your situation and help you secure pre-approval.
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Property Valuation: Lenders will value both your current property and the one you're planning to purchase.
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Exit Strategy: You'll need a clear sell property exit plan showing how you'll repay the bridging loan. This typically involves listing your current property for sale.
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Documentation: Provide proof of income, property details, and the exchange contract for your new purchase.
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Settlement: Once approved, funds are ready for your auction purchase, with typical bridging loan settlement occurring within days.
Bridging Loan Risks to Consider
While bridging finance offers significant benefits for auction purchases, it's important to understand the bridging loan risks:
Property Market Changes: If property values decline during your temporary finance period, you might face challenges refinancing.
Extended Sale Timeline: If your current property takes longer to sell than expected, you may need to extend your bridging loan term, increasing costs.
Higher Interest Costs: The elevated interest rate means every extra month you hold the bridging loan increases your overall expense.
Bridging Loan Security: Both properties serve as bridging loan security, so you need sufficient equity across both.
Is There a Bridging Loan Alternative?
Depending on your circumstances, you might consider these options:
- Deposit Bond: If you have less than 30 days between auction and settlement
- Equity Release: Drawing on equity in your current property for a deposit
- Family Guarantee: Using a family member's property as security
You can explore more about equity release loans for public servants or guarantor loans for public servants on our website.
Why Public Servants Have an Advantage
As a public servant, you're in a strong position when applying for bridging finance. Lenders view public sector employment favourably because of job security and stable income. Many lenders also offer interest rate discounts specifically for public servants.
At Public Home Loans, we specialise in helping public servants access suitable finance solutions, whether you need quick bridging finance for an auction property or are buying your next home through traditional channels.
Making Your Auction Purchase Work
The key to successfully using bridging finance for auction properties is preparation. Before you bid:
- Get your bridging loan approval in place
- Have your current property ready to list for sale
- Understand your total costs including bridging finance costs
- Know your maximum bid based on your bridging loan amount capacity
- Have a realistic timeline for your bridging loan repayment
With the right preparation and professional guidance, bridging finance can help you buy your dream home at auction without the pressure of selling first.
If you're a public servant considering an auction property and want to explore your options for bridging finance, our team can help you understand the process and connect you with suitable lenders. We'll work with you to assess whether a bridging loan makes sense for your situation and guide you through the bridging loan application process.
Call one of our team or book an appointment at a time that works for you to discuss your bridging finance needs. You can also contact us directly or learn more about bridging loans for public servants on our website.
