The hammer has just fallen and the sale is agreed upon. There is no backing out.
You have just won a bid at an auction and need finance available to complete in most scenarios within 28 days. Property Auction Finance could be your answer, but how does it work and what is the best deal you can get now?
Buying a property at auction has lots of appeal for property investors who are looking to either flip the property or fix and refinance into a buy to let term mortgage.
In some cases, there is the ability to save yourself 20-30% of the purchase price and avoid paying estate agent fees. An increasing number of buyers are choosing to bypass the traditional house buying chain.
Before taking the step of bidding on a property, it's vital to check the legal pack and perhaps get a survey done.
The following contents are explained below
Why use Property Auction Finance?
If you don't have the upfront cash to buy a property at auction, you'll need to look at borrowing options.
Why are traditional mortgage loans generally not an option for auction buyers?
Waiting for the bid to finish and then applying for a traditional mortgage will take too long and you may not be able to secure the money needed to complete
You can lose application fees if you apply for a traditional mortgage prior to the auction date if you do not win the property.
If you have no intention of living or renting the property but want to fix the property to make a profit, you'll not need a standard mortgage at all.
How does Property Auction Finance work?
Similar to bridging loans auction finance is offered on a short term, interest-only basis. In most cases, it's possible to get your funds within 14 days of application on the basis that you have enough deposit (or another asset as security) and a clear exit strategy.
An exit strategy is essentially how you plan to repay the debt at the end of the term. Auction finance lenders like to see evidence of its saleability or an agreement in principle from another lender as part of a remortgage.
Term lengths for auction finance are usually shorter than for mortgages and vary between 3-36 months.
You will need to put down at least a 10-15% deposit to buy a property at auction. The more deposit you put down, the better the interest rate.
Interest rates on auction finance are usually higher than the rates for mortgages and can be charged in 3 different ways.
- Monthly: You Pay interest monthly and the full debt will be due at the end of the term
-Serviced Monthly (Retained): The lender calculates how much you owe at the beginning of the term by adding the monthly interest payments to the loan amount. Essentially, you 'borrow' the interest usually for a set period and pay everything at the end.
What are the eligibility criteria for Auction Finance?
Auction Finance companies assess eligibility based on the following:
Deposit: Most lenders have a minimum deposit requirement of 10-25%, but if you put down more, you'll have a better chance of securing a lower interest rate
Credit History: Clean credit will always boost your chance of securing a good auction finance deal. There are options for bridging loans for clients with bad credit, however, this is only a deal-breaker if it puts the exit strategy at risk.
Exit Strategy: The stronger your exit strategy, the more likely you are to be offered a favourable auction finance deal. As mentioned above, evidence of sale or remortgage is required.
Experience in property: Having experience in similar property purchases and a strong track record can boost your eligibility.
How much does Property Auction Finance cost?
As well as interest on the loan, you will also have the following costs:
The lender fee is typically between 1-2% of the loan
A broker's fee
Valuation and solicitor fees
Types of property you can buy with Auction Finance
Auction Finance can be used to buy a wide range of property types including:
How to Apply for Auction Property Finance
When you've found a property you want to bid for, you'll put yourself in the best position to secure property auction finance by following these steps:
Download your credit reports.: Be prepared for the lender to carry out a soft credit check at the Decision in Principle Stage. If there are any inaccuracies in your report and having outdated information removed could boost your chances of landing a good deal. Click here to access your free credit report (Try it FREE for 30 days, then £14.99 a month- cancel anytime)
Get your documents in order: You'll need evidence of your deposit via a bank statement, a valuation of the property you intend to buy and KYC documents including your passport/residence.
Speak to a specialist auction finance broker: Using a specialist finance broker, such as Accelerated Finance will give you the best chance of securing excellent terms and rates on your loan and enable you to move quickly when the time is right.
How to Find the Best Finance Rates on Property Auction Finance
If you need to find auction finance fast and take advantage of the best rates available, we can help.
We offer a fee-free broker with a strong reputation of being solution-focused where other brokers have failed, all with exceptional service.