How to Finance an Auction Property
Step-by-Step Guide How to Finance an Auction Property
This is our step-by-step guide on how to finance an auction property in the UK. If you are considering buying a property at auction to renovate and sell on or rent out, Cavendish Capital can help with the Bridging Finance. Many investors buy property using auction finance because a normal mortgage typically takes much longer to arrange. Auction finance allows you to get the money you need on the day to purchase your property, once the sale is agreed you can refinance with a normal mortgage once it’s approved on the new property.
What is auction finance?
Auction finance is a type of finance used to purchase a property at auction if you don´t have all the cash up front to pay the deposits on the day! This is another term used for bridging finance or short-term finance. This type of finance can be arranged quickly in line with the timescales of purchasing auction houses.
Step 1. Finding an auction property
When looking for your Auction property always endeavor to view the Auction property – you would be surprised to know how many people neglect to do so.
Especially since the COVID-19 restrictions have made this a difficult pursuit, however good auction houses may offer virtual viewings and are still a good way to see what you are getting for your money.
Step 2 What is the market value?
Always check the market value of your property. This is especially important if you are going to be using a finance solution to purchase your property. understand why the property is at auction, why the previous owners are auctioning this property?
The market value will be required to access a loan for the auction.
Step 3 What am I liable for?
In order to safeguard yourself against a property money pit, always download a copy of the ‘Legal Pack’ from the auctioneer’s website and get professional advice from a solicitor to check the legal requirements on your behalf, before attempting to obtain finance. There may be hidden cost to your bargain Auction property, that could mean your finance option is no longer suitable to purchase with.
Usually, additional costs will be detailed within the ‘Special Conditions of the legal pack.
When thinking of financing your property you need to be aware that it is your responsibility to read it as the contents are legally binding.
STEP 4 Time to Finance
When and how to use auction finance to buy a property?
Want to buy property at auction but your working capital is tied up in equity in your portfolio? Auction finance is the logical solution.
Possibly, you have a reasonable amount of working capital, but you are aiming for more growth, and are planning to purchase a higher value property for a potentially bigger return.
First and foremost, you need to think timelines. The lender must be informed of the timescale needed for the funds to be transferred. Auction timescales are generally shorter than standard property purchases and this needs to be factored into your choice of the financial product; a broker is recommended to assist with giving you advice on what type of auction loan is suitable and how to get finance for an auction property.
When to use auction finance to buy a property?
Want to buy property at auction but your working capital is tied up in equity in your portfolio? Auction finance is the logical solution.
Possibly, you have a reasonable amount of working capital, but you are aiming for more growth, and are planning to purchase a higher value property for a potentially bigger return.
Remember, when buying an auction property you must provide at least a 10% non-refundable deposit on the day of the auction, and the balance in 28 days, and this is not protected under the consumer contracts regulation. This is where auction finance comes in!
Step 5 Bidding within Budget
Once you have decided on your suitable finance option, it’s time to bid!
Winning bidders will be charged an administration fee by the property auction company; always factor this in when bidding at auction. Generally, this is around £750 excluding VAT.
Remember to set a maximum price they are prepared to bid to on the day of the auction and stick to it – If you exceed the amount offered by your auction finance solution and risk it, you risk your lender pulling out.
How to get approved for Auction Finance?
At Cavendish Capital, we offer alternatives within the market and are always looking for a positive outcome that suits both our clients and our lenders. We pride ourselves on always providing the best solution at the most competitive rates.
If you would like to learn more about buying auction properties, auction finance, or bridging loans do not hesitate to get in touch with us through our website or give us a call. Our experts are always happy to help!
