Auction Finance

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Buying at an auction can be daunting. See how Marco used an Auction Finance bridging plan to reduce the risk and increase his chance of a successful bid.

Marco was keen to pick up a property as cheaply as possible. He had looked at an auction purchase, which have proven to be very popular in a depressed market and had seen some great bargains sell when he attended. Having spoken to mortgage brokers, he was extremely concerned about the risks involved in committing to a property that might not be suitable for a high street residential lender. He found many properties were in a poor state of repair and may have defects that rendered them un-mortgageable without punishing retentions (where lenders hold back an element of the loan until an issue is fixed).

He was also concerned about the time it takes to secure a mortgage at the moment, with new regulations meaning much higher scrutiny applications could take up to 6 weeks to complete. Most auctions have a clause requiring a 10% deposit to be paid at the end of the auction where the client exchanges contracts and commits to buying the property, and then has 28 days to provide the remaining balance. Marco was obviously reluctant to hand over around £15,000 he might lose if his lender was too slow.

We recommended an auction purchase bridging plan as an alternative. It’s a short term loan that can be pre-approved for the client and for the lot numbers he is looking to buy. Up to 75% loan to value can be agreed in advance, and is available within a few days to allow the client to get access to the property almost immediately. Once access is gained Marco was able to fix any issues, modernise the property and after 6 months could refinance to a standard residential mortgage at far better rates, because the value had increased such that a £60,000 property was now worth £95,000. The loan was more expensive in the short term both in higher interest rates and increased admin fees, but given the security it provides and the lower long term mortgage rate, it still works out far cheaper in the long term.

Talking to a mortgage broker might create far more opportunity than you might have realised. Remember we charge some of the lowest fees in the industry, and eager to pass on any of the knowledge we have learned over the past 10 years in the business. Call us on 0207 183 1101 to see how we can help you.

We recommend you research auction properties carefully before attending so you know what you are bidding on. This case study was specific to this client and your situation and circumstances may be different. You should always seek advice specific to yourself.

Picture of Author: Stuart Phillips

Author: Stuart Phillips

Fully CeMap qualified, Directly Authorised by the FCA and with over a decade of experience, Stuart has a wealth of experience in both specialist BTL and residential mortgages.

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