Property Auction Finance

 

When bidding and then buying a property at auction, you must be confident that you can obtain all the funds required to purchase outright in a very tight time frame of normally 28 days from successful bid. A successful auction bid can be a legally binding transaction similar to the exchange of contracts in standard property transactions. This makes it extremely important that the timescale is achieved otherwise strict financial penalties could be imposed on the bidder.

With a successful auction bid, you are usually obliged to pay the equivalent of 10% of the purchase price as a deposit, which can be confiscated if the remaining funds are not available as planned. Obtaining a mortgage in the needed time frame is frequently impossible, therefore unless the bidder has funds ready; a bridging loan may be the best alternative. A bridging loan is a short-term loan that can be used to acquire an auction property and is normally returned when the property is sold or refinanced onto more traditional financing, such as a mortgage.

Don’t miss out on an auction due to financial issues

The beauty of bridging finance is that it can be arranged quickly and is more flexible than a mortgage. Lending decisions on bridging loans for an auction property are often made within hours of the initial enquiry and the required funds are made available within a matter of days. This allows the borrower to complete the auction property purchase within the 28-day time frame typically required by the auction company.

Bridge finance can also be used to pay the 10% deposit if required by the bidder. The loan company would need to agree to this prior to the auction date, but provided this is acceptable, the 10% is normally secured against another property owned by the bidder or another person associated with the bidder.

It can even be arranged so that the bidder receives 100% or more of the purchase price so that renovation funds, fees, etc. are covered. As before, other properties will be required for security to enable this.

In order to get the best possible advice on bridging finance, please complete our short application form, and we can get a specialist bridging loans expert to get in contact with you. We are likely to source the best bridging loan rates in the UK.

How does auction finance work?

Auction finance operates as a specialised form of lending designed to facilitate property purchases made at auction. Typically, individuals or investors seeking to participate in property auctions but lacking immediate funds can secure short-term financing through auction finance providers. These loans are often structured with fast approval processes and flexible terms, allowing borrowers to act swiftly during auction proceedings. The property being purchased typically serves as collateral, mitigating risk for the lender. Once the property is acquired, borrowers may then seek longer-term financing or execute their exit strategy, which may involve renovation, development, or resale, thereby repaying the auction finance loan. This financing mechanism enables individuals to capitalise on investment opportunities without the need for substantial upfront capital, leveraging the potential of property auctions to generate returns.

How to borrow money to buy a house at auction?

To borrow money to buy a house at auction, individuals typically follow several steps. Firstly, they need to identify a lender who offers auction finance, often specialised lending institutions or private lenders. Next, they’ll need to provide necessary documentation, such as proof of income, a credit history, and details about the property they intend to purchase. The lender assesses the property’s value and the borrower’s financial situation to determine the loan amount and terms. Once approved, borrowers can obtain financing to cover the purchase price, usually with the property itself serving as collateral. It’s crucial to conduct thorough research, understand the terms of the loan, and ensure readiness to proceed swiftly, as auction transactions often require quick action. Additionally, borrowers should have a solid repayment plan in place, whether through longer-term financing or other exit strategies, to manage the loan effectively and secure the property investment.

Is it a good idea to buy at auction?

Deciding whether buying at auction is a good idea depends on various factors, including one’s individual circumstances, financial situation, and risk tolerance. Auctions can offer unique opportunities to acquire properties at potentially lower prices compared to traditional sales channels, making them attractive to investors seeking bargains or opportunities for renovation and resale. However, buying at auction comes with inherent risks, such as limited time for due diligence, competition from other bidders, and the possibility of unforeseen issues with the property. It’s crucial for potential buyers to thoroughly research the property, understand the auction process, and have financing in place before participating. For those well-prepared and willing to take on the associated risks, buying at auction can be a viable strategy to secure property investments at favourable prices.

Are auction properties risky?

Auction properties can indeed carry inherent risks due to several factors. These risks primarily stem from limited opportunities for thorough inspections and due diligence, potentially leading to unforeseen issues with the property such as structural problems, title defects, or outstanding liens. Additionally, the competitive nature of auctions can drive prices higher than anticipated, potentially diminishing potential returns for buyers. Furthermore, auction properties are often sold “as-is,” meaning buyers may inherit any existing problems without recourse. However, with careful research, preparation, and understanding of the auction process, these risks can be mitigated. Engaging professional assistance, conducting thorough property inspections, and having financing in place can help buyers navigate the risks associated with auctioning properties effectively.

Do repossessed houses go to auction?

Repossessed houses commonly go to auction as financial institutions or lenders seek to recoup losses on defaulted loans. These properties are typically sold through foreclosure auctions, where they are publicly auctioned off to the highest bidder. Foreclosure auctions provide an opportunity for lenders to recover outstanding mortgage balances while offering potential buyers the chance to purchase properties at potentially discounted prices. The auction process for repossessed houses varies by jurisdiction, but it often involves strict timelines and procedures governed by local laws and regulations. Interested buyers should conduct thorough research and due diligence before participating in repossessed house auctions to understand the property’s condition, potential liens, and associated risks.

What is bridging loan for auction?

A bridging loan for auction is a short-term financing solution designed to provide individuals with quick access to funds to purchase a property at auction. This type of loan bridges the gap between the purchase of a property at auction and the eventual long-term financing or exit strategy, such as selling the property or refinancing. Bridging loans for auctions typically have fast approval processes and flexible terms, allowing borrowers to act swiftly during the auction proceedings. The property being purchased often serves as collateral, minimising risk for the lender. These loans are particularly useful for individuals who need immediate funds to secure a property at auction but may not have readily available capital. However, borrowers should be aware of the higher interest rates and fees associated with bridging loans and ensure they have a viable repayment plan in place.