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Category: Auction Finance


Auction Finance – Solutions For Quick Property Purchase

Property developers attend auctions to weed out some of the best investment opportunities available. Auctions, however, present a multitude of complexities that do not come with mainstream property purchases.

Financing an auction property can bring with it headaches and technical problems not seen in traditional property purchase scenarios. Auction finance is specifically geared to deal with these issues.


Auction Finance – What’s the Difference?

Most commonly, auction finance is a form of bridging finance. It allows the property purchaser some breathing space to get more traditional forms of finance in place.

In some cases, the finance must be completed quickly to secure the auction sale. The loans are usually secured against the property that has been purchased or other property that the developer already owns. The idea is to make the funding available as quickly as possible to allow completion.

Funding can be confirmed within hours. This is in complete contrast to the days or weeks that financing can take in traditional situations. The process is less onerous, and lenders will be more interested in the security available.

Auction finance sources will also lend to individuals who are self-employed as well as limited liability partnerships, limited companies, partnerships, sole traders, and employed individuals. Their scope for consideration is far wider than the average high street bank.


Not Just A Bridging Loan

Auction finance does not always involve bridging loans, however. When an investor or property developer sees a property they would like to purchase at auction, they can prepare financing ahead of time.

Mortgages and buy-to-let mortgages can be agreed in principle well before the hammer falls. This places the bidder in a position where they will know where their funding limits lie. Situations where the bidder knows their maximum bidding threshold places them in a position of strength.

Auction sales move very quickly. Especially for those new to them, it can be nerve-wracking and overwhelming. When the hammer drops, 10 percent of the price has to be paid up front.

Under most circumstances, the balances will be settled within 28 days. It is usually the 28 day period that necessitates auction finance in the form of a bridging loan.

If a mortgage has been agreed in principle and where it is being secured on either the purchased property or other assets, it is on rare occasions possible to finance immediately using a mortgage agreement.

To achieve this, you may need an experienced advisor broker. Your broker will know which finance companies work the fastest to ensure completion on time while still meeting all the requisite legal requirements.


Commercial Property

Auction finance is not only available for residential property. A business may want to extend its premises or buy new premises at a different location. If it is expanding, there may be good reason to buy additional properties.

Commercial property financing is also available under auction finance and is a good avenue to purchase value for money property. In the same way that individuals may want to seek a mortgage, it is probable that a commercial purchase at auction will require both bridging finance and a commercial mortgage to obtain the property.

If you are an individual seeking to buy a second home or a business purchaser for new manufacturing premises, good financing advice will be crucial. Established and reputable brokers will be well networked and able to find you a good deal.

Whether you wish to use a traditional lender or will need to find a private lender, Belgravia Property will be able to guide you along the way. For confidential unbiased advice, contact our London office.


How Does Auction Finance Work?

When you’re looking to buy a house through an auction, you’ll need to be able to pay up a 10% deposit for the property on the day, and then pay the rest of the cost within 28 days to settle into the new home without any problems.

Now, the first thing people might try and do is mortgage their home to find the funds for this course of action, but it isn’t always as straightforward as this.

To make the endeavour possible, some people need to use what is called auction finance. We’re taking a closer look at it, to try and see what you’d need to do if the situation arose that meant you would need auction finance.

Auction funding is available up to 80% loan to value at rates from around 0.44% per month if a fast completion is required.


How Does Auction Finance Work?

To begin with, it’s important to remember that auction finance is a rapid way of getting the funding together when it may not be possible for your mortgage company to sort out the mortgage within the 28-day window.

What you’ll come to find with auction finance is that it usually allows you to get access to around 70 – 75% of the purchasing price, which means that you’ll need to find the remaining amount for a deposit.

Before the auction begins, you should speak to a finance broker and see if you can get finance for the property you intend to buy.

This is dependent upon several factors. These can include things like the location of the property you intend to try and buy, as well as the type of property you’re looking at, for example, if it is a bungalow or a three-storey property.

As well as this, how you intend to repay the loan will also be considered when assessing your chances of getting financed, and the amount of money you want to borrow is also going to be considered.

To a lesser degree, it is not uncommon for finance brokers to look at your credit score, as well as your experiences in this field, although the former is not a massive influencing factor.


What Happens Next?

Once the finance broker has looked at the above information, you’ll be made an offer on principle, which is an offer you can take with you to the auction and make to try and get the property.

If you do manage to get the property in the auction, the firm who is financing you will step in and make a formal evaluation of the property, and then they will be able to make you a formal offer for your finances.

From there, it’s usually a case of allowing specialist solicitors to step in and begin sorting out the paperwork for you.

Overall, this is a basic explanation of how auction finances work. It is usually a question of being evaluated to see if you’re suitable for the finances and then winning the property in the auction so that an official offer can be made and accepted.

If done correctly, the entire process is relatively straightforward and can help you to get the property you’re looking for.

The cost of auction finance is generally no more than standard funding.

However, it is important that the only lenders that will generally complete within auction contract timescales are bridging and short-term lenders. Rates start at around 0.44% per month for very low loan to value deals.