Following my own experience, the first thing to say is if there is any way you can avoid bridging finance…do it! It’s a very uncertain route and is unbelievably expensive…in addition, you should be aware that, certainly in my experience, salespeople will not always be honest with you. What follows is our experience of bridging finance…
Before we went to auction, our house was on the market. Upon completion, we would be releasing some £200k worth of equity that we had built up over 20 years. We decided to spend half term in Wales and view a bunch of potential properties.
We highlighted 8 properties to go and look at, the last of which was Hendre Fawr. All of the viewings went well but by the end of the week, we were truly knackered! The write up on Hendre Fawr was not great, it was quite a distance from our accommodation and the auction was due to take place before we could possibly exchange on the house. The only reason we went to see it at all was that Steph insisted.
In the end, we went, we saw and we all fell in love.
This left us with a problem. The guide price for Hendre Fawr was £100k and our house was still unsold. Upon our return to Winchester, we learned that we had received an offer on our house which was great, but there was really no hope of completing in time and no guarantee that the sale would go through at all. We looked around at different options and came to the conclusion that the only option was bridging finance.
We started contacting property auction finance brokers who charge you a fee but will find you the best loan for your needs (apparently). Most of the brokers were reticent to guarantee the funds within a certain timescale, this is surprising since most property auctions require that you settle the outstanding balance within 28 days of the auctions. Failure to do this will result in serious penalties:-
- The house is put back up for auction
- You become liable for all fees related to re-auctioning the property
- You lose your 10% deposit
- You are liable for interest for every day between the purchase date and the date of the next auction (assuming it sells at the next auction!)
Having spoken to a couple of companies we found someone who sounded really confident. He said three things that made me think we should go with them:-
Sure! We can organise the finance within 28 days, usually we can turn it around in 14. We deal with property auction finance, we do this all the time.
We offer “Pre-Auction Comfort” which ensures the loan is ‘underwritten’ prior to the auction.
Usually, surveyors are sent in the day after the auction so everything gets moving as fast as possible.
I would personally call these lies, however, I have since spoken to an IFA who framed it very diplomatically – he said that sales oriented finance brokers will often sell you the best case scenario – rather than being honest. I came to realise that the other brokers I had spoken to had been honest with me and that I had been sold on a broker who was pretty average and whose charges were way higher than anyone else I had spoken to. By this time I was somewhat locked in as we had already paid the £450 ‘commitment fee’.
So, the first point – “…usually we can turn it around in 14 days”. When I had signed on the dotted line I was assigned someone to deal with my loan application. In fairness, she was lovely to deal with and very efficient – but the web of bullshit I’d been spun started to unravel. I was told that the legal side alone will take between 3 and 5 weeks.
Hang on…3 weeks is 21 days. How could you usually complete the whole transaction within 14 days if this is the case?
The second point:- Pre-auction comfort? More bullshit – this is standard for this kind of loan. It’s a bit like saying we offer wheels with your new car.
The third point…surveyors! I’m writing this on the 15th March – the auction was the 6th and still no surveyor has been appointed. In fairness, the person dealing with my application had arranged quotes from an approved panel of surveyors as follows:-
Valuer 1 – £3,000 plus vat for both – availability this week and are able to return the reports within seven working days thereafter.
Valuer 2 – can only do the Dawn Gdns <our current house> @ £2,500 plus vat
These figures are insane!! We had our house valued by Halifax for a remortgage a few years ago and it cost £350. These surveyors know they are on a limited panel and therefore feel it’s okay to demand exorbitant prices.
I asked the broker to go back to the lender and ask for more reasonable surveyors but they refused. So I asked her to find me another lender which she did. I fully expected to pay a little more but to my surprise, she found one that was about £7,000 cheaper and guarantees surveyor costs of £800 on both properties!! Great news, but why weren’t we offered this loan initially.
We have calculated the total cost of the loan is in the region of £10,000 before interest. Interest is around £1,750 per month with no penalty for early repayment. That £10,000 does not include the surveyors fees or the lenders legal bills (around another £1,700).
I have come to the conclusion that bridging finance is not for the faint hearted – it’s worth the pain as we’re (hopefully) going to get the house of our dreams but I have resolved never to go down this route again!
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