Auction Finance UK

This type of finance is popular in the auction finance UK market because it can be used to buy residential and commercial properties as well as land. Key features:

• Short Term: Loan terms are 1 to 18 months, some lenders offer up to 36 months.

• Interest Only: Borrowers pay only the interest during the loan term.

• Asset Based: The loan is secured against the purchased property or other assets.

How Does Auction Finance Work?

Auction property finance works in a simple process for auction buyers, facilitated by an auction finance lender:

1. Pre-Approval: Buyers approach a lender before the auction to get a “Decision in Principle” which confirms how much they can borrow.

2. Winning the Bid: Once the buyer has won the bid, they use the loan to pay the purchase price and associated costs.

3. Exit Strategy: Borrowers have a plan to repay the loan, such as selling the property, refinancing or using rental income.

The speed of application is a key benefit of property auction finance, many loans are approved and processed within 14 days.

Benefits of Buying at Auction with Auction Finance

Buying at auction has many benefits and auction bridging finance enhances these:

Auction loans provide the speed and flexibility needed to secure properties quickly, making them ideal for property developers.

1. Discounted Properties: Auctions have properties at below market value, perfect for investors and developers.

2. Speed and Certainty: Auctions eliminate lengthy negotiations and funds from auction finance UK mean buyers can meet the tight deadlines.

3. Renovation Opportunities: Many auction properties need work, so opportunities to add value and profit.

4. Diverse Property Types: Auctions have residential, commercial and land properties, so suitable for all investment strategies.

Auction Finance Lending Criteria

Auction finance lenders consider the following criteria when approving loans:

• First Charge on Property: The lender takes a first charge on the purchased property.

• Pre-Approved Decision: Buyers should get a pre-approved finance agreement before the auction.

• Asset Based Loan: Lenders look at the value of the property not the borrower’s credit history.

• Exit Strategy: A clear and achievable repayment plan is required.

Properties That Can be Bought with Auction Finance

Auction finance is flexible, buyers can buy:

• Residential Properties: Houses, flats and apartments.

• Commercial Properties: Offices, warehouses and retail units.

• Land: Development land and agricultural land.

This is why it’s popular with developers, investors and businesses in the UK property market.

Auction Finance for Developers

Auction finance UK is a vital tool for developers who want to:

• Buy properties at auction.

• Fund renovation or redevelopment projects.

• Make more profit from undervalued properties.

Auction purchases generally require completion within tight deadlines, typically 28 days, making auction finance essential for developers.

Developers can use auction bridging finance to buy properties, do the necessary work and sell them on at a higher value.

Auction Finance for Investors

For investors, auction property finance offers:

• Competitive Bidding: Get funds to bid at auctions.

• Portfolio Growth: Add new properties to a buy to let portfolio.

• Profit Opportunities: Buy undervalued properties, refurbish them and sell or rent for profit.

When looking to buy property at auction, it’s crucial to have a backup plan in case the primary financing option falls through.

Auction Finance Rates and Fees

Rates for property auction finance are 0.43% to 0.85% per month, depending on loan size, LTV and property type. Borrowers should also expect to pay:

1. Arrangement Fees: 1-2% of the loan amount.

2. Exit Fees: Charged by some lenders on repayment.

3. Valuation Fees: For property valuation. A valuation report is generally required to secure auction finance loans, although some lenders may offer loans without it.

4. Legal Fees: For the loan’s legal documentation.

5. Broker Fees: For sourcing and arranging the loan.

How to Apply

To apply for auction finance you need to:

1. Find the Property: Research properties and work out your maximum bid.

2. Pre-Approval: Get a Decision in Principle from a lender to confirm how much you can borrow.

3. Know the Costs: Work out interest, fees and repayment terms to ensure you can afford it.

4. Submit Application: Provide all required information, including property details and a clear exit strategy.

Alternatives to Auction Finance

If you’re considering auction finance, it’s essential to explore alternative options to ensure you’re making the best decision for your situation. Some alternatives to auction finance include:

• Traditional Mortgages: While they may take longer to arrange, traditional mortgages can offer more competitive interest rates and terms. This option is ideal if you have the time to wait for approval and prefer lower monthly payments.

• Buy-to-Let Mortgages: If you’re purchasing a property to rent out, a buy-to-let mortgage might be a more suitable option. These mortgages are designed specifically for rental properties and can offer favorable terms for landlords.

• Commercial Mortgages: For those purchasing commercial properties, a commercial mortgage could provide more favorable terms. These loans are tailored to the needs of businesses and can cover a wide range of commercial property types.

• Development Finance: If you’re planning to develop the property, development finance might be a better option. This type of finance is designed for property development projects and can cover both the purchase and construction costs.

• Private Funding: You may also consider private funding options, such as private investors or crowdfunding platforms. These sources can offer flexible terms and quick access to funds, though they may come with higher interest rates.

It’s crucial to weigh the pros and cons of each alternative and consider factors like interest rates, fees, and repayment terms before making a decision. By exploring all your options, you can choose the best financing solution for your property purchase.

Buying Property at Auction: Tips and Advice

Buying property at auction can be a thrilling experience, but it’s essential to approach it with caution. Here are some tips and advice to help you navigate the process:

• Research, Research, Research: Before bidding on a property, research the market value, the property’s condition, and any potential issues. This will help you make an informed decision and avoid overpaying.

• Set a Budget: Decide on a maximum budget and stick to it to avoid getting caught up in the excitement of the auction. This will help you stay financially disciplined and prevent overspending.

• Inspect the Property: If possible, inspect the property before the auction to identify any potential issues. This can save you from unexpected repair costs and help you assess the true value of the property.

• Understand the Auction Process: Familiarize yourself with the auction process, including the rules and regulations. Knowing what to expect can help you feel more confident and prepared on auction day.

• Don’t Get Emotional: It’s easy to get caught up in the excitement of the auction, but it’s essential to remain calm and rational. Stick to your budget and make decisions based on logic, not emotion.

• Consider Working with a Professional: If you’re new to buying property at auction, consider working with a professional, such as a property agent or auction finance broker. Their expertise can help you navigate the process and secure the best deal.

By following these tips and advice, you can increase your chances of success and avoid costly mistakes when buying property at auction.

Auction Property: What to Expect

When buying property at auction, it’s essential to understand what to expect. Here are some key things to consider:

• Condition of the Property: Auction properties are often sold in their current condition, which may include defects or needed repairs. Be prepared for the possibility of additional costs for renovations or maintenance.

• No Warranties: Auction properties are usually sold without warranties, so it’s essential to inspect the property carefully before bidding. This means you’ll need to do your due diligence to avoid any unpleasant surprises.

• As-Is Sale: Auction properties are typically sold “as-is,” which means you’ll be responsible for any repairs or maintenance. Make sure you factor these potential costs into your budget.

• No Financing Contingencies: Auction sales are usually cash-only, so you’ll need to have financing in place before bidding. This is where auction finance or bridging loans can be particularly useful.

• Quick Completion: Auction sales typically require quick completion, often within 28 days. Ensure you have the necessary funds and arrangements in place to meet this deadline.

• No Renegotiation: Once the hammer falls, the sale is final, and there’s no room for renegotiation. Be certain of your bid and the property’s value before committing.

By understanding what to expect, you can approach the auction process with confidence and make informed decisions. This knowledge will help you navigate the complexities of buying auction properties and increase your chances of a successful purchase.

Why Use a Specialist Broker for Auction Finance?

Using a specialist broker for auction finance UK can make a big difference to the loan:

• Knowledge: Brokers know the auction finance market and can match you with the right lender.

• Better Deals: Brokers negotiate the interest rates and terms.

• Easier Process: They do the paperwork and ensure you comply with lender requirements.

Who to Choose for Auction Finance

Choosing the right lender for auction property finance is key. Consider:

• Rates and Fees: Compare the interest rates and costs.

• Eligibility Criteria: Make sure the lender matches your financial circumstances.

• Reputation: Work with lenders who are transparent.

Auction finance UK is unregulated so lenders have more flexibility in their lending, so you need to choose a reputable provider.

Common Mistakes to Make

1. No Pre-Approval: Not getting a finance agreement before the auction can delay or prevent the purchase.

2. Not Budgeting: Not factoring in fees and interest can be a financial headache.

3. No Exit Strategy: Without a repayment plan, getting approved becomes harder.

4. No Brokers: Missing out on expert advice can mean worse loan terms.

FAQs Auction Finance and Buying at Auction

How does auction finance work?

Auction finance is a short term loan to cover the purchase price of a property bought at auction. Here’s how it works:

1. Pre-Approval: Get a “Decision in Principle” from a lender before the auction to confirm your borrowing capacity.

2. Winning the Bid: The loan covers the property purchase, funds are provided within 14 days.

3. Exit Strategy: You repay the loan by refinancing, selling the property or other means.

How much does it cost?

Auction finance costs vary but include:

• Interest Rates: 0.43% to 0.85% per month.

• Fees: Arrangement fees (1-2% of the loan), valuation fees, legal fees and potentially exit fees. For example, a £200,000 loan at 0.75% monthly interest would cost £1,500 per month plus fees.

Is it a good idea to buy at auction?

Buying at auction can be a good idea if:

• You want discounted or unique properties.

• You’ve done your research on the property including legal checks.

• You have finance, such as auction finance, to meet the payment deadlines. But you need to plan and budget to avoid unexpected costs.

Can you borrow for an auction property?

Yes you can borrow for an auction property through:

• Auction Finance: A short term loan for auction purchases.

• Bridging Loans: To cover the gap between the auction purchase and securing long term finance or selling another property.

Can I get a bridging loan for an auction property?

Yes bridging loans are an option for auction properties. They provide fast funding to meet the auction deadlines and are repaid by refinancing, selling the property or other means.

Can I borrow to buy a house at auction?

Yes you can borrow to buy a house at auction through:

• Auction Finance: Designed specifically for auction purchases.

• Mortgages: Take longer to arrange and are less common for auction purchases due to time constraints.

Is it a good idea to get a bridging loan?

A bridging loan is a good idea if:

• You need quick access to funds for time critical purchases, such as an auction property.

• You have an exit strategy to repay the loan, such as refinancing or selling a property. But bridging loans are more expensive than traditional loans and should be used for short term needs.

How does property auction finance work?

Property auction finance works by providing a short term loan to cover the purchase price of an auction property.

1. Pre-Approval: Get a finance agreement before the auction.

2. Funding: Funds are released shortly after the auction to meet the payment deadlines.

3. Repayment: The loan is repaid by refinancing, sale proceeds or other means.

Can I get a mortgage on an auction property?

You can get a mortgage on an auction property but it’s difficult due to the short payment deadlines (28 days). Auction finance or bridging loans are often used first and a mortgage is arranged later as part of the repayment strategy.

Is it worth buying an auction property?

Buying an auction property can be worth it if:

• You’ve done your research, including legal and structural checks.

• The property is good value or has renovation potential.

• You’re prepared for the risks, such as hidden defects or extra costs.

How do I finance an auction property?

You can finance an auction property through:

1. Auction Finance: A short term loan for auction purchases.

2. Bridging Loans: To cover the gap between purchase and long term finance.

3. Cash: If you have the funds available and want to avoid finance costs.

What deposit do I need for an auction property?

Auction houses require a 10% deposit on the day of the auction. For example if you bid £200,000 you’ll need a £20,000 deposit.

Can I buy a house at auction with a bridging loan?

Yes you can buy a house at auction through bridging loans. They provide fast funding to meet the auction deadlines and are repaid by refinancing or selling the property.

What deposit do I need to buy a house at auction?

You’ll need a 10% deposit of the hammer price on the day of the auction and funds to cover fees and the balance within the 28 day deadline.