Auction Finance

Buying a property at auction is both nerve-wracking and exciting and auction finance affords potential buyers the means with which to make the purchase. Buying at auction provides a plethora of opportunity and can provide some welcome bargains and exclusive properties from a variety of sources that are not available elsewhere.

Typically, the buyer will need to have a 10% deposit readily available to put down as soon as the deal is closed. From there, arranging the perfect finance package is crucial as the sale must be completed within 28 days of the successful bid being accepted. It is a quick process and one that is important to manage properly. Whether for seasoned developers and property tycoons or first-time buyers, it is important to secure the funds necessary to make the purchase.

SPF Short Term Finance has a dedicated team of auction finance experts who are able to work closely with you to ensure that the loan you need to purchase the perfect auction property is stress-free. This will allow you to focus on the property itself and its proposed use, rather than having to worry about how to finance such an exciting opportunity.

We are a multi award-winning UK finance intermediary with over 20 years of experience in the field. Over the years, we have secured dozens of clients with the ideal finance in order to make a purchase at auction.

Call Us – 03332 226 687

Email Us – finance@spf.co.uk

How Does Auction Finance Work?

The auction process and the associated financing required are fairly straightforward processes. However, it is important that as a buyer, you account for each step of the process to ensure you don’t get caught out or hit with any unexpected complications. First, it is important you have done all your research for the properties to be featured at auction prior to the auction itself. Assess your budget, the guide prices and assess each property of interest individually and with the right experts.

Once you have bid on the property at auction and the gavel comes down, the deal is complete and you will have entered into a legally binding contract. You will have to pay 10% up front as a ‘holding deposit.’ This deposit will be paid there and then to the auction house and will be worth thousands of pounds, so it is important that before you look into auction finance at all, you have that 10% readily available to ‘hold’ the property in question. The total outstanding balance for the property to complete its purchase must be completed within a 28 day period and this is where auction finance is paramount to your purchase.

Typical mortgages from banks take a lot longer than 28 days to be approved; hence the importance of making sure your loan is from a specialist provider of these loans and from one that understands the market and the auction process in great detail; such as those we regularly work with at SPF Short Term Finance.

With time being of the essence once your bid is accepted, finance will be needed much quicker than with other property finance. As soon as your bid has been accepted, you will need to apply for the finance needed to complete the deal.

What are the Application Criteria?

As part of the application process, most lenders will carry out a variety of checks. They are likely to ask for proof of earnings to ensure you can cover the costs of the loan itself over the agreed time period. These checks will routinely include:

  • Valuation of the property
  • Loan to Value (LTV) of the property
  • Credit checks
  • Affordability checks
Rate Max LTV Lender Fee Max Term
0.457% per month 70% 2% 12 months
0.59% per month 40% 2% 12 months
0.99% per month 70% 0% 12 months
0.99% per month 75% 2% 12 months

Our Rates

Depending on a few factors including the value of the property, its proposed purpose and a valid exit strategy being in place, our auction finance team always ensure that you get the finest expertise and guidance and the best rates through our extensive networks of lenders.

Status and Non-Status Lenders

There are two main types of lenders that will be able to offer the appropriate auction finance:

Status Lenders – These are lenders who are regulated by the Financial Conduct Authority (FCA). Status lenders will only offer a maximum LTV of 70%. This means that if a property is worth £700,000, they will only lend up to £490,000, meaning that after the deposit placed at auction, the buyer will still need to account for the remaining 20%.

Non-Status Lenders – These lenders will typically not carry out the same credit and financial checks as status lenders and are not regulated by the FCA. However, they will allow you to secure the entire loan, at an LTV of greater than 70% against the total value of your property. The risk here is that should the buyer default on the loan, their property can be repossessed. As they can provide more funds on a speedy basis though, non-status loans can be a quicker route to complete the purchase.

Property Auction Finance – The Fees

As with mortgages and other property finance, there are a range of fees that apply when taking out auction finance and all buyers should be aware of these charges.

Before finance is agreed, there should be a clear and viable exit strategy in place to ensure the loan can be paid off in full and within the required timeframe. This can be put in place via the refinancing or sale of other assets or properties. This is important and should be accounted for from the outset to ensure the process runs smoothly.

Vendor’s Fees – Once the price is agreed, a fee will need to be paid to the estate agent or vendor and in cases where the property has been repossessed, to the seller. These fees can sometimes total more than 2%.

Auction Fees – Every auction house will take a cut and will need to be paid a fee, sometimes up to as much as a few hundred or even £1,000 per sale.

Legal Fees – It is very important to ensure that all of the paperwork associated with the property’s purchase is properly checked through by a solicitor. This makes sure that there are no loopholes or clauses in contracts and other documents that you may be unaware of. Furthermore, you will need a legal expert in the field to look through the Offer in Principle (OIP) that will initially be provided by prospective lenders.

Valuation Costs – This may be taken care of before the auction, but is necessary. It will entail a property surveyor providing an assessment and a homebuyer’s report for the property in order to provide a structural survey.

Get in Touch for Auction Property Finance

At SPF Short Term Finance, we have a dedicated team who can provide you with the expertise advice and help you need to secure the ideal auction property finance:

Call Us – 03332 226 687

Email Us – finance@spf.co.uk

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