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.
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.