The timeframe given for buying auction properties is much shorter than estate agents. It can be difficult to get the money together in time.
To complete in time investors have two main options. To purchase the property in full with savings or Auction Bridging Finance.
Auction Finance is available if you are buying to renovate, sell or rent out. The property can also be in any condition.
Is Auction Finance Short Term?
Property Investors and Landlords use Auction Finance in different ways. Those looking to sell the property can enjoy terms up to three years, though most are taken out on 12 months. Landlords use Auction Finance to just purchase the property. With the aim to refinance as soon as possible. To get access to most of the market, Landlords refinance after six months. We do have access to lenders who will refinance within six months of purchase or renovation. If the property needs renovating. This needs to be done and completed prior to refinancing onto Term Finance.
Bridging Finance v Auction Finance
It's not a dissimilar offering. Bridging Finance gets you from one point to another it can be fast but often not a top priority. Whilst Auction Finance big emphasis is on completing quickly within 28 days.
Do I need to have Finance in place before the auction?
You definitely need 10% deposit the auction house requires on the day. The remaining 90% is required within 28 days.
It would be unwise to pay 10% deposit without first being pre-approved for finance. You can be declined for many reasons from your circumstances, requirements or the property.
The penalty for not completing in time can include:
- Loosing your 10% Deposit
- Paying the Owners Mortgage Interest
- Paying the Auction House to re-list the property
- Cover any shortfall if it later sells for less.
Ask your mortgage broker about auction finance pre-approval. This is a Mortgage in principle with the lender. Giving you confidence that finance is approved should you win the bid.
How quickly do auction finance property loans have to be repaid?
You can get Auction Finance on a 1-3 year or 6-month term. The best auction term for you depends on your requirements.
If auction finance is used to complete the purchase quickly, then six months is fine.
If the property needs renovation, then a longer term is required. The duration depends on how quickly those works are expected to take.
How does Buying at Auction Work?
You should check with the Auction House what they need. The general terms are to pay a deposit of 10% on the day. A cheque is often acceptable. You'll also need to pay the remaining balance within 28 days.
The remaining balance is often paid from quick auction finance, savings or equity.
The minimum deposit for Auction Finance?
In total, a minimum deposit of 25% of the Purchase Price is required. With 10% of the purchase price paid on the day of the Auction.
The maximum is 70-75% Loan-to-Value (LTV) for auction finance. Higher risk purchases can see the LTV decrease requiring more deposit. If the lender views the proposal as risky.
You may see 100% LTV Auction Finance advertised, this is where the deposit is secured on other property you own. Most lenders are happy with multiple securities.
The higher the deposit and more security you can offer the lender, the lower the LTV and better rates you can obtain.
What is an Auction Finance Exit?
Auction Finance is a short term loan. The lender wants you to fully repay the outstanding balance and any interest by the end of the loan.
The Exit is how you are going to do it. Typically your planned exits could be to:
- Sell the Property
- Remortgage and live in the property
- Remortgage and rent out as a Buy-to-Let
Your planned Exit is important to the Auction Finance lender to feel secure in lending you the funds. As well as obtaining Auction Finance your Mortgage Adviser can arrange possible
How is the Interest on the Finance Paid?
The lender will charge you interest in one of three ways. You can discuss the best method with your mortgage adviser.
- Retained Interest. The interest you would pay over the term of the mortgage is paid out of the loan itself from the outset. You would, therefore, need to cover any shortfall with your deposit.
- Rolled Up Interest. The interest you pay over the term of the mortgage is added to the loan. You, therefore, repay this when you refinance or sell the property.
Serviced Interest. As a typical loan or mortgage, you pay the interest payments each month.
Is Auction Finance available for a Limited Company?
Yes, it's a frequently used option for Landlords. It's not dissimilar to normal Auction Finance but you may find higher interest rates. All shareholders and directors will be required to sign personal guarantees.
Finance is available for Trading Limited Companies but lenders prefer new Special Purpose Vehicles (SPV) with no trading history or other activities.
Auction Finance Lenders
You will typically find Bridging Lenders are also Auction Finance Lenders. Whilst there is a difference, it is about time and ensuring the lender can complete promptly.
Auction Finance Brokers will compare the many lenders and criteria. Proposing to you the best Auction Finance Rates. If you do not wish to use a specialist you may try these lenders:
- Affirmative Finance
- West One Loans