Looking For Auction Bridging Finance?
If your capital is tied up in existing properties, Auction Finance is a quick temporary solution allowing you to add to your portfolio.
While you can secure Auction Finance after the Auction Room sale, it's advisable to confirm the finance beforehand through an Agreement in Principle to lessen the risk and allows you to stay within your agreed budget at the point of sale to set you up for success.
Accelerated Finance has worked on multiple Auction Finance Deals in the past with tight deadlines. If you need to arrange finance, fast contact us today.
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Author- Aakash Nagrani CeMAP CeRER
Why Not Get A Traditional Mortgage For A Property Bought At An Auction?
A traditional investment mortgage generally is a viable solution to purchase an Auction Property, but the only risk is time to completion which is approximately just under 1-month to complete.
Arranging a mortgage in such a short space of time can be stressful, and bearing the risk of not being able to complete the finance on time could result in you losing your deposit of 10% which needed to be paid to secure the property after the hammer hits at the auction.
Speed is not the only drawback of a traditional mortgage, but generally speaking, the condition of the property bought during an auction comes in a poorer state which will mean finance will be harder to obtain. Properties that don't have a habitable kitchen or bathroom are deemed unmortgageable.
A key advantage of auction finance is the ability to structure the loan in a way which gives the flexibility to the term required. This type of finance also allows the borrower to exit without early repayment fees to a longer-term loan or if there is a development opportunity to fix and sell the property.
How Does Auction Finance Work?
Auction Finance works almost identically to a Bridging Loan on a short term, interest-only basis where you can access funds within fourteen days provided the correct documentation is in order, and there is a sufficient requisite deposit and clear exit strategy.
Your exit strategy is essentially how to repay the debt towards the end of the term. Before submitting an application, lenders will need viable evidence of either an agreement in principle (AIP) or a sale contract from a prospective buyer or estate agent.
One of the benefits of using Accelerated FInance is we will approach and work with lenders on your behalf. You will have access to the whole marketplace and will be able to seek out the lenders that will best fit your situation and who will offer you the best rates.
One of our development products which can be further explained here covers finance for the whole journey and can convert the existing auction finance into a buy to let term loan automatically which saves costs on both valuation and legal fees.
How Much Does Auction Finance Cost?
Auction Finance can depend on many factors including:
Your personal situation
Development Experience (if you wish to develop the property),
The current state and location of the property,
Exit Plan for the loan
Total Amount Borrowing
How Much Deposit Do You Need For Auction Finance?
Financing at an auction is competitive and there are now plenty of products available in the market to meet a borrower's requirements, however, there are no products that cover 100% of the purchase price.
Including the 10% deposit that would be required on the day to make a successful bid, there will be other administrative costs, valuation, and legal costs. A full breakdown of the costs involved can be found here.
As well as the 10% deposit required on the day of the successful bid, there are also additional administrative costs that you will need to cover at this time - these will vary from auction to auction. The deposit and administrative fees are generally not covered under auction finance, and you will need to have funds available to pay these in cash.
How Long Is the Term On A Typical Auction Finance Loan?
The majority of bridging loans are short-term and must be repaid in 12 months or less.
Longer durations are available, with some providers offering 18-24 month contracts, but the longest you'll probably find is 36 months
Developing a Property Bought at Auction
It's common to apply for auction finance to cover the costs of any development work you want to carry out. Both experienced property developers and those who are new to the game can secure auction finance.
If it's your first development project, you will need to put forward added security, however.
If you are planning to redevelop or refurbish the property, you must have an idea of what you want to do and the associated costs.
Lenders will want to know about your plans and the related costs to gauge risk and understand the value the work will add to the property.
Expect to be required to present definite ideas for development, not unclear proposals that will be hard for lenders to get behind.
Whole deals can fall through if lenders aren't convinced of the feasibility of a development project or if they think you are undertaking too much.
Accelerated can help you build your development appraisal and further understand your plans to check if the finance being offered is a good fit. If you would like to read further on development finance, please follow the link here