Purchasing a property at an auction can be a great experience. Whilst bidding against other fellow property enthusiasts can be extremely exciting and nerve-wracking, the overall savings that can be made on the purchase can be enormous in comparison to buying it in the more conventional way.
Making prior financial plans and calculations before heading off to bid for a property is key when purchasing at auction. Working out how much you can borrow, what fees may be due, and how much of a deposit you are able to put down could be essential to not making any errors when bidding, potentially losing out on a great investment.
Generally, you will need to have 10% of the purchase price available when you win the bid, with the rest of the balance needing to be paid within 28 days. If your funds aren’t in place by the deadline, then you may lose your deposit and the property which is why planning well in advance of the auction is important.
Traditional mortgages are not best suited to buying at auction as it is generally hard to get the funds in place and on time. That is not to say that it is impossible to use a traditional mortgage, however, with auction finance, funds can be available within a few weeks and sometimes even days of applying.
Auction finance is assessed differently to how a traditional mortgage is assessed. The lender wants to know:
– what your plans are for the property.
– if there is any work that you intend to carry out on it, how much you want to borrow (of which how much will be for purchasing the property and how much for developing it) and how long for.
– finally, and possibly most importantly, what your plan for repaying the auction finance loan is.
In some cases, you can borrow more than the purchase price of the property to undertake any necessary work that needs completing on the property. This is very common; those looking to purchase at auction usually intend to purchase the property for below market value in order to complete work on the property and raise the value to re-finance onto a better rate at a later stage.
Lenders will only be willing to lend the funds if they understand the costs, risks and potential value that will be added to the property after all developments have been completed. You should expect to be required to present your ideas for development so that the lenders can get behind your plans.
Your broker will discuss your plans and financing needs for the property and will work with you to answer any questions that the lenders may have to ensure that your ideas are presented in the best light possible.
We work with a large variety of specialist auction finance lenders who offer the most competitive rates on the market allowing us to give you the best possible deal for your circumstances.
Your financial broker will seek to get you an offer in principal and provisional approval for the finance before you even step foot into the auction house leaving you with peace of mind and a well thought out plan before you even place a bid.
The cost of auction finance can be quite high in comparison to a traditional mortgage, however, the speed of the finance often outweighs the costs of potentially losing a great investment.
Whilst the finance providers will offer competitive and quite favourable loans, they won’t cover the full purchase price and potential development costs. You should expect to have funds available to foot any outstanding amounts as well as the deposit and fees that the lenders will charge.
If you want to discuss auction finance, talk to one of our independent financial advisers.