Putting finance in place for property auction purchases

Property auctions continue to be popular for those wanting to buy a property promptly and at a competitive price.

We deal with many property developers, landlords and commercial investors to help source the quick finance needed as often full payment for the property is required within twenty eight days from the gavel going down.

This makes bridging finance the preferred choice for this kind of purchase. It can be arranged quickly and we work with plenty of lenders with criteria to fit virtually all property types, no matter what condition the property is in.

Some properties at auction do require some refurbishment to prepare the property for rent, or renovation to bring the whole property up to standard, or the plan may be to convert the dwelling in to separate flats or a House in Multiple Occupation (HMO).

If the property doesn’t have a kitchen or bathroom, for example, then most mainstream lenders won’t provide a mortgage and the other issue with High Street lenders is that they often can’t act fast enough to meet the auction deadlines. That’s why we work with many specialist finance providers to ensure the funds are on place well before the required date.

Remember also with bridging finance, the whole amount of the loan needs to be repaid at the end of the agreed term, usually six to twelve months. This provides valuable time from the point of purchase for the renovation works to be completed and the property prepared for rent or sale.

It’s important for the buyer and the lender to have a planned route to pay off the loan, often called an exit strategy. This can come from selling the property, savings, or the sale of another property or business.

Here’s a few tips on buying at auction and to help you plan ahead if you’re looking to acquire a property either for the first time or you’re building a portfolio:

Catalogues showing the lots at an auction are usually available three weeks prior to the auction both as a paper catalogue and on the auction house website. On the day there are often a Addendum’s to show changes to the lots or the properties available. Check the addendum sheet when you attend an auction.

Legal packs
The legal pack for a property includes details of conveyancing papers, conditions of sale and any covenants, lease details etc. Make sure you and your solicitor review the pack on any property you’re looking to purchase.

View the property
Arrange to view the property before the auction. Getting to know the local area, including schools and local amenities could help you work out the amount of rent you can charge. You may also want to arrange for a survey of the property to be carried out.

Set a budget
Calculate how much you can afford to pay for a property before an auction and if you start to bid don’t exceed your budget. When you make a successful bid and the hammer goes down, you are legally bound to complete the purchase.

Check the Yields
Yields a simple way of calculating the potential of one property versus another. You can quickly work out the most profitable option, whether you are comparing several new properties, or properties already in your portfolio. For example the Gross Yield is the total amount of rental income generated over a year, as a percentage of the property’s purchase price or current value. So the calculation looks like this:

Annual rental income X 100
Purchase price or Value

Financing your purchase
Full payment is usually required within twenty eight days. Plan ahead and make sure you can have the funds available in this time frame. We can help you put the finance in place with an agreement in principle before the auction.