Understanding Bridging Finance for Auction Purchases
Purchasing property at auction presents unique challenges. Unlike traditional property purchases, auctions require immediate commitment and quick settlement, often within 30 days. For Perth buyers who haven't yet sold their existing property, bridging finance offers a practical solution to secure their dream home without the pressure of selling first.
A bridging loan is a short term loan designed to bridge the gap between buying a new property and selling your existing one. This temporary finance allows you to move forward with an auction purchase while maintaining control over your current property sale timeline.
Why Auction Buyers Need Quick Bridging Finance
When the hammer falls at an auction, you're legally committed to the purchase. The exchange contract is binding, and you typically have just 30 to 60 days for bridging loan settlement. This urgency makes traditional finance applications impractical, as they often take longer to process.
Bridging finance provides:
- Fast approval, often within 24 to 48 hours
- Access to loan options from banks and lenders across Australia
- Flexibility to buy before you sell without rushing your current property to market
- The confidence to bid competitively at auction knowing your finance is secured
How Bridging Loans Work for Auction Properties
The bridging loan amount is calculated based on the combined value of both your existing property and the new purchase. Lenders assess your loan to value ratio (LVR) across both properties, typically lending up to 80% without Lenders Mortgage Insurance.
The bridging loan security comes from both properties. Your existing home serves as primary security while the new auction property provides additional security. This dual-security approach enables lenders to approve larger loan amounts with manageable risk.
During the bridging period, which typically ranges from 6 month bridging to 12 month bridging terms, you'll only pay interest on the loan. Many Perth buyers opt for capitalised interest, where interest payments are added to the loan amount rather than paid monthly, reducing immediate financial pressure.
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Bridging Loan Costs and Fees to Consider
Understanding bridging finance costs helps you plan your auction purchase effectively. The bridging loan interest rate typically sits higher than standard home loan rates, reflecting the short term nature and urgency of approval.
Common bridging loan fees include:
- Application and establishment fees
- Valuation fees for both properties
- Legal and conveyancing costs
- Early exit fees if you repay during the first few months
- Monthly account keeping fees during the temporary finance period
While the variable interest rate on bridging finance may appear higher initially, remember these are short term property finance solutions. Most borrowers exit within six months, making the total interest capitalisation manageable compared to the benefit of securing their ideal property.
The Bridging Loan Application Process
Speed is crucial for auction purchases. The bridging finance application process at Luxe Finance Group is streamlined to provide fast approval without compromising on thorough assessment.
Your bridging loan application requires:
- Proof of income and employment
- Detailed information about your existing property
- Auction property details and contract
- Clear exit strategy demonstrating how you'll repay the bridge loan
- Evidence of marketing plans for your current property
The exit strategy is particularly important. Lenders want confidence that you can repay the bridging loan through your sell property exit plan. Most Perth buyers list their existing property for sale immediately after securing their auction purchase, ensuring a defined path to bridging loan repayment.
Bridging Loan Benefits for Perth Property Buyers
Choosing bridging finance for your auction purchase delivers several advantages:
Timing Control: Buy before you sell without pressure to accept undervalued offers on your current home. This avoid selling first approach means you can wait for the right buyer and achieve optimal sale price.
Market Opportunity: Perth's property market moves quickly. Bridging loans enable you to act when the perfect property appears at auction, rather than missing opportunities while waiting for your home to sell.
Seamless Property Upgrade: Move directly from your current home to your new property without temporary accommodation. This continuity is particularly valuable for families with children in school or established work routines.
Auction Confidence: Attend auctions knowing your bridging loan approval is in place. This certainty allows strategic bidding without the anxiety of conditional finance.
Understanding Bridging Loan Risks
While bridging loans provide valuable solutions, understanding bridging loan risks ensures informed decision-making. The primary risk involves holding two properties simultaneously, doubling your property expenses during the bridging loan term.
If your existing property takes longer to sell than anticipated, you'll continue paying the higher bridging loan interest rate. Market conditions, seasonal factors, or pricing issues can extend the selling period beyond your initial bridging period estimate.
Carrying costs during the temporary finance period include:
- Interest on both the existing mortgage and bridging loan
- Council rates and water charges on both properties
- Insurance for two properties
- Maintenance and utility costs
Working with experienced mortgage brokers helps mitigate these risks through realistic property valuations, appropriate bridging loan LVR calculations, and well-planned exit strategies.
Bridging Loan Alternatives to Consider
Before committing to bridging finance, explore whether a bridging loan alternative might suit your circumstances. Some Perth buyers can access equity in their existing property through refinancing, though this requires formal refinancing applications that may not meet auction timeframes.
Others consider private funding options, which offer even faster approval but typically at higher interest rates. Selling your current property before bidding at auction eliminates bridging finance needs entirely, though this approach requires temporary accommodation and may mean missing auction opportunities.
For buyers with substantial equity and strong income, some lenders offer urgent finance through enhanced pre-approval products that function similarly to bridging loans with potentially lower costs.
Maximising Your Bridging Loan Approval Chances
Lenders assess several factors when considering your bridging finance application. Strengthening these elements improves your bridging loan approval prospects:
Equity Position: Higher equity in your existing property means lower overall loan to value ratio, making lenders more comfortable with your application. Properties in established Perth suburbs typically receive favourable valuations.
Income Stability: Demonstrating consistent income and employment gives lenders confidence in your capacity to service both loans during the bridging period.
Realistic Selling Timeline: Present a credible marketing strategy for your existing property, including comparative market analysis and agent recommendations. Properties priced appropriately for current market conditions receive faster approval.
Credit History: Maintain clean credit records without defaults or missed payments. Lenders view strong credit history as indicating responsible financial management.
Working with Luxe Finance Group
Navigating auction finance requires expertise and speed. Luxe Finance Group specialises in urgent finance solutions for Perth property buyers, with established relationships across major banks and specialist lenders.
Our team understands the pressure of auction deadlines and works efficiently to secure your bridging loan approval before auction day. We manage your entire bridging loan application, coordinate property valuations, and liaise with solicitors to ensure smooth auction finance and bridging loan settlement.
Beyond securing your initial bridging finance, we also assist with your exit strategy, helping you transition from the short term loan to permanent home loans once your existing property sells. For buyers purchasing investment loans, we structure your finance to optimise tax benefits during the bridging period.
Whether you're a first home buyer at your first auction or an experienced investor expanding your portfolio, our bridging finance expertise ensures you can bid with confidence, knowing your finance is secured.
Call one of our team or book an appointment at a time that works for you to discuss how bridging finance can help you secure your next property at auction.
