Property auction finance – Get bridging loans for auction purchases
Investors who want to buy property at an auction usually need auction finance. With property auction finance, the funds can be delivered fairly quickly as they are a type of bridging loan.
Loan Corp can help you by making lending decisions, sometimes within hours of your query, and the funds can be at your disposal within days.
What Is Auction Finance and How Does it Work?
Auction finance is considered a kind of bridging loan, which is for individuals who are buying property at auction. Auction finance loans are quick to arrange and are faster than normal bridging loan agreements.
There are usually very tight deadlines on an auction property, which is why auction finance lenders must quickly provide the funds. Auction sales particulars state that you must have 10% of the purchase price ready before the end of the auction.
The auction house gives you 28 days to a month for the full payment. An auction finance deal is extremely well-suited to meet such close deadlines, especially with the increase in interest rates to 2.25% by the Bank of England, which is another reason why auction finance is preferred over a mortgage.
Auction finance works on an interest-only and short-term basis. It is like traditional bridging loans; you can get the money within 14 days of application (depending on your situation), but you must show you have enough deposit and a clear exit plan.
The exit plan is how you’re going to repay the loan. Most of the time, it is a remortgage or the resale of the property at auction.
Before getting approved, auction finance lenders prefer to have a valuation report stating that the property can be sold or you have another agreement in place when planning repayments. Auction finance loans must be repaid within 1 to 24 months; however, some lenders may go up to 36 months.
If you do not have at least a 10% deposit to buy the property, you must have another asset or property equal in value as a security measure.
An auction finance lender will give you a better rate if you can put down a larger deposit.
What Types of Property Can You Buy with Auction Finance?
Any mixed-use, residential or commercial property can be bought with auction finance whether it is habitable or not. You can also use the finance to buy land; however, land loans may be more appropriate.
Mixed-use property
This is also known as semi-commercial property and refers to properties that are part-residential and part-commercial. This includes offices and stores with apartments/flats above.
Residential property
Whether the property at auction is going to be renovated, rented out, or sold, LoanCorp can help with the auction finance, no matter the condition of the property. Usually, landlords buy properties using auction finance because a mortgage would take longer to come through.
An auction finance lender will prefer landlords to have an owned property for a minimum of 6 months before they consider refinancing. With the right tools, you can get refinancing within six months of your auction purchase.
Commercial property
This includes offices, restaurants, shops, warehouses, industrial units, and leisure centres. Anything that has a business on the property. Auction finance can provide funding for business owners and investors.
Auction finance can also be used to buy non-property assets, such as cars, machinery, and high-value artwork. You have to consult with a broker before applying for finance for these auction purchases. Our brokers may direct you to a different type of borrowing that may be a better fit, such as remortgaging for a car.
What Documents Do You Need for An Auction Finance?
Auction finance lenders will need the following documents when applying for finance.
Valuation report
Usually, this isn’t needed as most lenders would carry it out with their own panel of surveyors. However, a smaller company may want you to do a valuation at your own cost. If you have your eye on multiple properties, then you have to pay additional valuation fees.
Proof of your exit plan
This is a standard requirement when applying for auction finance. If you want to remortgage the property, then a deal in principle is enough. However, if you have other exit strategies, such as investments, then you will be asked for proof that the funds will be in your bank account in a specific time frame.
Proof of ID
You can provide your passport or driver’s license for this. You will also be asked for your proof of address.
Proof of income
Some lenders may want your bank statements and other documents that prove your income; however, it’s not always required, as the exit strategy is more important.
A business plan (commercial buyers)
If you’re auctioning for commercial property, then the lender may want a business plan to assess the viability.
Proof of your experience in property
While this is not required with first-time buyers who want to purchase a house at auction, it will be requested if you want to develop the property. The lender will ask for previous projects to assess your record in this industry.
What Is the Cost of Auction Finance?
Since auction finance is quickly approved, the costs are generally higher than a mortgage. In addition to paying an interest rate every month, you would have to pay the following fees:
- Legal fees – These are paid to the solicitors that completed the legal paperwork.
- Valuation fee – In the case of getting your own valuation report, you would have to pay a chartered surveyor.
- Lender’s exit fee – Certain lenders will charge an exit fee when you complete paying for the auction finance amount. It is usually 1 month’s interest.
- Arrangement fee – This is charged by the lender and is 1% to 2% of the loan amount. It can be added to the loan.
- Broker fee – This is usually about £500 or 1.5% of the loan amount. This fee is sometimes paid by the lender.
How is Interest Charged in Auction Finance?
Interest rates on property auction finance are much higher than the interest rates for mortgages. They are usually similar to regular bridging loans. Since you’re getting the funds so quickly, the interest is racked up!
The exact amount of interest paid depends on your application and how the lender charges interest. It may be one of these three ways:
- Retained – This is when the amount you owe is calculated at the beginning of the term by adding the monthly interest payments to the overall loan amount. This means you ‘borrow’ the interest for a set timeframe and pay everything off in the end.
- Rolled up – The monthly interest is added up and put on the loan amount at the end of the term. The whole total is payable at the end of the loan term.
- Monthly – You pay your interest monthly as normal, and the full loan amount is due at the end of the stipulated term.
What are the Eligibility Requirements for Auction Finance?
Your eligibility is usually based on these factors:
- Credit history – If you have a good credit history, it will increase your chances of getting auction finance. However, a bad credit file only affects you when it affects the exit strategy; then, the lender will not approve your auction finance application.
- Exit strategy/plan – When your exit plan is strong, you will get a favourable auction finance deal. This includes providing evidence of the property value and that it will sell or remortgage for the loan amount. If it is a development project, you should have experience in the field to help improve your chances of getting auction finances.
- Deposit – Most lenders need you to put 10% to 25% of the purchase price down; however, putting extra will increase your chance of getting a lower interest rate. While this is higher than the mortgage deposits, it is quicker to come through.
- Property experience – You can get auction finance even if you’re a first-time buyer (under the right circumstances); however, having experience with auction purchases can boost your eligibility for finance. If you already own properties, then you can use those as proof of good credit and experience.
Auction finance is technically like unregulated borrowing, so lenders usually can assess your case and approve you, even if you don’t meet the above options.
Tips When Applying for Property Auction Finance
Once you’ve decided on a property you’d like to bid for, researched the purchase price, and have enough deposit; you are ready to apply for auction finance!
Here are some tips to remember when getting your auction finance to improve your chances.
Download your credit files
The lender will look at your credit reports to determine your eligibility. Usually, bad credit is only an issue if it affects your exit strategy. However, you should challenge any inaccuracies and remove outdated information to increase your chances of getting a good deal.
Have all your documents in order
All the documents required for auction finance must be kept safely in a file. Be ready with these files when applying, as it makes it easier for you and the lender. It also makes the process faster.
Consult with an auction finance broker
Speaking to an experienced broker who knows the ins and outs of auction finance can greatly increase your chances of getting a good deal. They can give you good advice, ensure you find a good lender, and get a favourable interest rate for you. The broker will also guide you in making a winning bid on the property at auction.
FAQs
What happens if you make a winning bid with no auction finance?
You can face legal consequences and lots of financial penalties, which will make your life difficult. Auction purchases are legally binding once the auction master hits his hammer, so you will also breach the contract. You will lose any deposit or reservation fees and may have other costs on top of that.
Should I buy a house at auction?
There are many advantages to buying a home at auction. Many people opt for this as the price of homes in the UK has risen considerably, with continuous growth. The main benefit is that you can buy a house from an auction for considerably lower than market value. Also, the sale will be completed quickly, usually within a month.
Can I use a mortgage for an auction purchase?
Yes, you can, but you will have to have your mortgage ready and approved when you bid in the auction. Mortgages may take weeks to get approved and depend on the purchase price of the property, which may put you at risk of breaching the contract. To make sure your funding is guaranteed and available, auction finance is the best choice.
Loan Corp Has You Covered
Getting auction house finance can be stressful, but in the hands of Loan Corp, you can finally be at ease.
Contact us now to get expert brokers to help you achieve the property of your dreams.