If the term ‘auction finance’ has caught your eye, it’s perhaps fair to say that you’ve seen an episode or two of Homes Under the Hammer. You’ve probably also wondered about buying a property that has seen better days at auction for a steal and restoring it to an income-generating asset.
But anyone who’s ever been through the process understands only too well the real risks and the stresses involved. True, buying at auction can come with many benefits, but it’s certainly not for the faint of heart! Here are some quick tips about how it can work for you.
Giving auctions to you straight
Most auctions work on the basis that you snap up a property at below market value. But, due to the nature of auction properties, this comes with a much higher level of commitment when a sale is agreed.
Because of this, buying with a traditional mortgage can be risky in the extreme. For example, if a 10% deposit has been paid at the auction, a lender might then refuse to secure a loan on it. And, with such a short completion deadline looming over the whole thing (usually 28 days), there would be little room to manoeuvre.
If lending is required, a much better solution is to use dedicated auction finance. This is generally provided by bridging lenders at similar terms and rates.
Spot the difference
The primary difference between auction finance and using a standard bridge loan is that, for the former, the lender will:
- Take a look at the security in advance
- Credit score the application
- Review the legal pack
All this, AND they will give assurance that funding will be available within the 28-day notice period.
Given that being assertive at an auction is essential for success, getting some kind of auction-specific finance organised in advance can give you an edge over anyone else relying on finance to complete.
Which loan is best?
This auction finance strategy can be combined with properties that are not normally suitable security for lending to generate wealth quite powerfully.
Additionally, some loans – like those we have outlined below – can be taken over terms of up to a year. So, if extensive renovation or development works are required that can be accommodated.
And because the lender gets a chance to review the property in advance, they can set terms. You know exactly what the costs will be before you walk into the auction room.
Frequently Asked Questions
There are a variety of scenarios that might cause a property to be deemed un-mortgageable, however the following rules are common:
- It must have a functional bathroom and kitchen.
- It must be wind and water tight
- It must not be overcome by wet or dry rot.
- Not close to mining works, areas of landfill, areas of recent flooding or subsidence.
- If leasehold, have at least 50 years left on the lease.
- Have necessary planning and building regulations in place.
- Be of a standard construction, ie brick or stone, slate or tile.
- Be occupied by a protected or vulnerable tenant.
- Under £40,000 in value.
No. The reason people assume auctions are cash only is because you need to commit at the auction itself. It can be very risky to commit unless you know you have the funding in place and so this is why we recommend specific products instead of mortgages.
We have collected together a number of excellent guides to how the process of buying at an auction actually works:
Which lenders have specific auction property products?
If you are considering buying at auctions, speak to us first. We can guide you through the various options, as well as recommend the best lender for the job, and handle the process swiftly and efficiently through to completion.
Auction purchases need not be a stressful experience, especially when you have a broker with a decade of experience you can rely on to get the job done.
Call us on 0207 183 1101 or contact us via our online form today to bring us on board.