Bridging Finance for an Auction Purchase: How Two First-Time Investors Secured a Commercial Property in Stoke-on-Trent

A challenging case with tight deadlines and a difficult tenant. We got there in the end, working proactively as a team to get the best outcome for the client.

Key takeaways

• Bridging finance can fund an auction purchase that a normal mortgage is too slow for, with indicative terms possible within 48 hours.
• Adding a second property as security lifted borrowing in this case to as much as 98% of the asking price.
• Down-valuations are common in the current market, so auction buyers should keep a plan B and some backup funds ready.

Why an auction purchase needed fast bridging finance

Here’s a situation I see more often than you’d think. The directors of the business, in their thirties, both holding down full-time jobs, spotted a commercial property near them in Stoke-on-Trent that was heading to auction. They could see exactly what they wanted to do with it: keep the sitting tenant in place for now, then in time turn the building into a dog grooming business.

The trouble is, auctions don’t wait. There was strong interest expected on the day, so the clients wanted to make an offer before the auction to take it off the table. They offered £155k, above the guide price, and the vendor accepted on auction terms with a 28-day completion.

So far, so good. But this is where it got tricky. The buyers had set up a brand-new limited company with no trading history. They had some savings, but they wanted to borrow as much as possible, partly because they knew the building would need money spending on it once they owned it. They also suspected the current sitting tenant may well have wanted the property himself.

They’d been talking to other mortgage brokers and hadn’t come up with a solution. That’s when one of the directors and I got chatting at a networking event, and started looking at how we could actually make this work.

Why most lenders would not fund this deal

Let’s be honest. A brand-new company with no trading history, first-time investors, an auction clock ticking, and a request to borrow almost the full purchase price. That’s a combination most lenders run a mile from.

On top of that, the property itself wasn’t going to do all the heavy lifting on its own. To get anywhere near the amount the clients needed, we had to think differently about the security.

How Howe Commercial Finance structured a 98% LTV bridging loan

At Howe Commercial Finance, we arranged a bridging loan over 12 months on a serviced basis to provide the maximum loan, with indicative terms of £152k at 0.95% per month.

The key to it was the security. We used both the clients’ main residence and the new commercial property to support the loan. Together, that got us to 98% loan-to-value against the purchase. Serviceability of the monthly interest was achieved with the rental income from the tenant, alongside the clients’ own surplus income.

Using both properties as security was the only way to reach that level of borrowing. Not every lender will do it, and to be honest, not every broker knows it’s even an option. We moved fast too: indicative terms in 48 hours, the application in within another 24, and the valuation and legals instructed within days.

Working around a down-valuation and a difficult tenant

No two deals run smoothly, and this one threw plenty at us. The tenant wouldn’t allow access for the valuation for a week, which cost us early time. Once we were back on track, a health allegation from the tenant meant an asbestos report was needed, and that was another seven days waiting for access.

Unfortunately, both properties were down-valued. That pulled the maximum bridge facility down to £110k gross, or £106k net. Rather than let the deal fall over, the clients brought in a private investor to cover the shortfall, which meant extra legal work and fees, but the lender was comfortable with the approach. We extended the completion by a couple of weeks to get everything in order, and I was in near-daily contact with the client, the solicitors and the lender to keep it all moving.

The outcome: an auction property secured in six weeks

• The property was purchased within the extended deadline, the clients’ first ever investment project.
• Maximum funding was secured, topped up by the private investor after the down-valuation.
• The site is now safe in their hands, ready for the planned sale into their pension fund.
• It’s a real step towards becoming a commercial property landlord and their longer-term goal of opening a dog grooming business.

Without a structure like this, the deal would almost certainly have been lost to another buyer.

What other business owners can learn from this deal

If there’s a lesson here, it’s about preparation and the people around you.

• Have a good, proactive broker and a good solicitor. For auction and bridging work especially, a specialist solicitor is worth their weight in gold.
• Always have a plan B and some backup money. Down-valuations are normal in the current market, so factor them in from the start.
• Auction and bridging deals cost more in legal and valuation fees. Budget for that up front so it isn’t a shock.
• Respond to queries quickly and positively. When you deal with things fast, things move.

The clients here were determined to make the purchase, and that determination, plus a team that kept communicating, got them over the line.