What is auction finance?
People are increasingly turning to buying a property at auction in recent years as the opportunity to snag a bargain property. According to Which? houses on average sell for 30% less than they would through an estate agent, and in 2016 over 30,000 homes went to action equating to sales of over £3.5 billion (a four percent rise from the previous year) according to the Essential Information Group.
Auction finance helps people to get a home at auction, by borrowing money or getting a loan in order to finance a property they have bought under the hammer. With quick turnovers (all properties bought at auction must be paid in full within 28 days of the sale has taken place, or you could end up losing the house), auction finance can provide a lifeline to many buyers. We work with a number of leading lenders in auction finance to help you get the funding you need to buy your next home.
What are the benefits of buying at auction?
There are a number of advantages to choosing to buy a house at an auction house.
One of the best things about buying properties at auction is how much time you save on considerably length purchasing procedures that are normally part and parcel of the property buying process, meaning that you can make a fairly swift purchase on a house. The reason why the process is so speedy is due to the fact that if you win the house at auction, contracts are exchanged almost immediately, with a 10% deposit paid on the day too and with the entire purchase needing to be complete within 28 days. This means that you know exactly how long you have to complete inspections or fill out the necessary paperwork. This means you can move into the property at a far quicker rate than you would do with otherwise, where you have to wait for sometimes months to move in due to waiting for settlements on regular properties or an agreement on a mortgage.
Getting a bargain
As we have previously mentioned the opportunity to nab yourself a house at a great price is aplenty at an auction, partly down to a homeowners desire to sell their property quickly, a renovation project or because the house has gone up for sale due to being probate or has failed to sell through other means.
One of the main attractions of buying a house at auction is the fact that you will not have to worry about losing the ouse to the higher bidder after your offer has already been accepted, or about arrangements falling through at the very last minute. Property auctions provide a far greater deal of transparency to the property buying process (as you can clearly see other bids for the house in question, rather than relying on the word an estate agent) and once you have won the auction property, you are legally obligated to then go ahead with buying the house.
How does auction finance work?
If you are wondering what are the next steps you need to take after finding that dream home that you are dying to bid on, you’ve been to the auction and the gavel went down on your bid but you need help with finance, here is what you should do:
You will have 28 days (commencing on the day of the auction) to get together the rest of the funds after having paid the 10% deposit on the day. This is where bridging loan lenders can come to your rescue.
You are able to borrow an amount starting from £50,000 all the way up to £25 million, and we work with a number of lenders so we can help you find the right loan option for you. Providing that you meet the criteria stipulated by our lenders and you provide the necessary documentation, a bridging loan can be sorted out in under 14 days, allowing you to complete with plenty of time to spare your auction sale.
The key features of bridging loans are as follows:
- A loan term up to 24 months
- You can borrow between £50,000 and £25 million.
- All credit score histories are taken into consideration
- Loan-to-value (LTV) is up to 70% (regulated) 75% (non-regulated)
- Rates start at 0.59% monthly
- Receive funding on average within 14 days
What happens when I make an application?
If you make an application for auction finance through one of our bridging loan lenders, we will request more details about the auction property and set up a valuation by a surveyor, as this will impact the terms of the loan, as will your intended plans for the house.
If the lender is FCA regulated, credit checks will be carried out in order to determine the best possible repayment method for you. This will also be dependant on whether you are intending to live in the property or are a property investor intend to re-sell the house.
If the lender isn’t regulated (also known as ‘non status’ there will not be credit checks carried out on you, but instead, the focus will be on the value of the property you have bought at auction. It is important to always remember that the lender has the right to repossess this house if you are unable to keep up with repayments.
After this, if you are happy with the offer you will be given an Offer in Principal (OIP), once this has been signed by you, an appointment will be made with a RICS valuer in order to arrange a valuation of the property (this will take place within a 72-hour window). Liaising with solicitors regarding our checklist of requirements as well as having all documentation for the property signed and complete will also need to be carried out before funds can be released for the house, as well as the relevant photo identification and documents showing proof of residence (through providing a utility bill or bank statement dated from within the last three months) in order that the mortgage deed can be completed.
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