How does auction finance work? What kind of property can you use it for? Who can use auction financing and how can you get it? Read on for the answers to all this and more.
What is auction property finance?
Auction finance is a type of bridging or short-term finance which allows you to buy residential, commercial and land at a property auction.
Buying a property at auction can be a great way to purchase property at a discounted rate, and auction finance enables you to take advantage of the opportunity.
Auction finance can also be good way for experienced and established developers to expand their current portfolio. Buying property below the market value can really be the difference to ensuring a profitable return on your investment.
How to buy auction property and how does it work?
Buying a property is straightforward and fast. Although it can be a high-risk strategy, it does provide the opportunity to buy a property with a fixed timescale known from the beginning and also allows the seller to get a quick sale too.
The first step is to find an auction house and use their catalogue to find a property.
When you have selected a property you intend to bid on, try to collate as much information as possible.
Some auction houses will allow you to view the property before the bidding process and this is the perfect opportunity to assess and value the property.
Although the bidding itself is blind, the auction house does provide a guide price in advance, so you are able to prepare the funds. The auction house will then host the auction where you can bid. If you win the lot, you typically need to pay 10% of the winning bid immediately, giving you usually 4 weeks but in some circumstance 6 weeks to complete the payment.
Here is a quick checklist to help:
- Always view the property if possible.
- Do your research and understand what the market value of the property is.
- Be sure to download a copy of the ‘Legal Pack’ from the auctioneer’s website. This is a breakdown of the legal requirements for the buyer before they purchase the house and should be viewed prior to purchase.
- If finance is required to purchase the property, inform the lender of the timescale required for the funds to be deployed.
- You can use the equity from additional property to fund up to 100% of the purchase price
How to finance auction property
Buying a property at auction is very different to traditional purchases. Completions happen much faster, so it often pays to arrange your finance before the auction gets into full swing. Which is why many investors turn to short-term auction finance options to enable them to buy quickly.
But the speed is not the only reason investors opt for bridging finance; here are the features of this funding solution:
- Funding for non-standard and extensive construction
- All income types considered
- Rates from 0.45% (other fees apply).
Getting a mortgage for an auction property
A mortgage is a form of long-term finance and typically last 5 years. Securing a mortgage takes a few months and it may not be possible to have the money in the bank ready for the short time frame of an auction purchase. The property may also need extensive building work, which a mortgage doesn’t typically allow.
How to buy a house at auction without cash
You don’t need to be a cash buyer to purchase a property at auction. You can use specialist auction finance. A finance specialist can help you secure the funding you need within the short time frame, allowing you to make bid on a property without necessarily having the funds upfront.
The exit strategy
Having a viable exit strategy is crucial and integral to securing a bridging facility. The lender needs to be satisfied with your plans for repaying the loan once the term has ended.
If the exit strategy is to sell the property, then the lender will be looking for evidence of an improved value and a sellable property.
Be sure to talk through your plans with an independent financial advisor if you’re unsure about anything.
Using an auction finance broker
There are more than 150 specialist property lenders, each with their own rates, credit appetite and geographic focus.
The services of the right auction finance broker could be the difference between approval and rejection or landing a good deal and being encumbered with disadvantageous rates.
Our team has decades of knowledge working with trading businesses, property investors, developers and landlords and can help position your deal with the most appropriate lenders.
We provide free specialist advice, so if you are new to acquiring at auction and have no experience of the bridging market, we can help.
Find out more about our Auction Finance product
Newable Finance helps businesses access the finance they need to:
- Thrive
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We are a UK finance broker dedicated to finding the right finance solutions for SMEs and property backed businesses across the UK and in every sector.
Being able to access the right funding when it is needed is a critical part of the growth journey of your business. Newable Finance can provide you with the independent perspective, whole of market reach and the depth of experience to secure the fast and flexible finance required to deliver your growth ambitions.
- Asset finance
- Auction finance
- Bridging loans
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- Cashflow support
- Commercial mortgages
- Construction finance
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- Invoice finance
- Merchant cash
- Recovery loan scheme
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