Auction Finance | Finance Auction Purchases

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Home » Bridging Loans » Types of Bridging Loan » Auction Finance

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What’s in this guide?

  • Auction finance explained
  • Auction bridging loan criteria
  • How much can I borrow?
  • Auction finance rates & costs
  • How to get finance to buy a property at auction
  • FAQs
  • Auction finance explained

    What is auction finance?

    Auction finance is another name for bridging loans or bridging finance. Bridging loans are used to purchase properties at auction as they can comfortably be processed in the 28-day completion timescale.

    Read more on auction finance below, or check out our guide section or auction finance calculator.

    Why do auction purchases require specialist finance?

    When buying a property at auction, certain rules must be followed.

    Firstly, the winning bidder must pay 10% of the purchase price on the day of the auction. You must then complete within 28 days (for residential properties, commercial and land may have slightly longer deadlines to allow for more complex processing).

    Should you fail to come up with the money at the end of the 28 days, you stand to lose your deposit and the right to buy the property.

    Traditional mortgages can take time to complete, especially for unusual or commercial security. As a result of this, they leave you at risk of losing your deposit and costs.

    What properties can I borrow against?

    We can consider almost any security, including the following:

    • Residential Property
    • Retail Units
    • Property in a Poor State of Repair
    • HMOs
    • Semi-commercial Property
    • Land With Planning
    • Land Without Planning
    • Farms
    • Leisure Complexes
    • Hotels
    • Guest Houses
    • Pubs
    • Care Homes
    • Shops
    • Offices

    Auction bridging loan criteria

    Security

    First charge is required over the property being purchased.

    Applicant

    We can accept applications in sole names, partnerships, LLPs, Ltd companies, pension funds and trusts.

    Finance for non-UK nationals and non-UK residents can be considered.

    Credit history

    We can consider any credit history – although those with bad credit history should ensure their finance is pre-approved prior to the auction. This reduces the risk of problems in obtaining finance after a bid has been accepted.

    Property condition

    Property can be considered regardless of condition, including unmortgageable property. That said, property in need of heavy refurbishment, or uninhabitable property should be checked by any potential lender prior to the auction to ensure that finance be offered.

    How much can I borrow?

    Loan sizes

    We can raise auction finance from £25,000 with no maximum loan size.

    Loan to value

    We’re able to fund residential property up to 80% LTV (loan to value), or up to 100% with additional security.

    Where the property you’re buying will be refurbished, we may be able to fund up to 85% LTV in some situations.

    Term

    We can offer terms between 1-24 months for unregulated loans. For regulated applications, your maximum term will be restricted to 12 months.

    Auction finance rates & costs

    Rates

    Rates start at 0.43% per month for residential property. Most loans are offered at rates between 0.48-0.65% per month.

    The lowest rates are usually reserved for lower LTV applications, with loans at 50% or below securing the best terms. This is because lenders price their applications to risk, and greater equity in the property reduces the risk of financial loss to the lender.

    Fees

    In addition to the interest charged, you’ll usually be expected to pay a number of fees. They are:

    Lender arrangement fee – This fee is charged by the lender and is usually 1-2% of the loan amount. It is paid on completion and can usually be added to the loan.

    Lender exit fee – Although it is becoming less common, some lenders charge an exit fee when the loan is repaid. Where charged, this would usually be 1 month’s interest.

    Broker fees – Although we don’t charge a fee for arranging a bridging loan, many brokers do. This fee is usually between £500 and 1.5% of the loan amount.

    Valuation fee – In some cases, a physical inspection of the property by a chartered surveyor is needed. In many cases, we can avoid this by undertaking an electronic valuation, which can save you money.

    Legal fee – This fee is paid to the solicitors for completing the legal work. Usually, both your own and the lenders legal fees must be met by the borrower.

    How quickly can I get terms?

    We always issue terms within two hours, but if your application is urgent, we can usually issue terms within 30 minutes. We pride ourselves on working together with our clients, so if your need is time sensitive, just let us know.

    How to get finance to buy a property at auction

    The information needed to make an application

    In order to make an application, you will usually need to provide the following information:

    • Details of the property to be purchased
    • A copy of the auction sales particulars
    • Details of your exit strategy
    • Your own personal details

    How long does it take to complete?

    Applications can usually be completed in 7-14 days.

    No matter what your deadline is, we have access to lenders who provide a great personal service to allow a quick completion with no hassle. It can be especially simple for residential properties, especially where there is a lot of equity in the properties.

    Where legal work and valuations are already complete, for instance, where a lender has withdrawn their offer late in the day, we have lenders with the capability to complete on the same day that you apply.

    Who offers auction finance?

    Bridging loan lenders offer finance for auction purchases. Bridging lenders can be either regulated or unregulated – with regulated lenders being held to a higher standard in their handling of customers. If you’re nervous about taking out a bridging loan, using a regulated lender can offer peace of mind.

    Brokers can make the process of arranging auction finance far simpler, which is often vital given the tight deadlines that applicants must work to.

    FAQs

    Why use a specialist?

    Although this type of finance can complete quickly, that’s not to say that this will always happen.

    The process is not as straightforward as people often think and the key to making sure there are no delays comes down to solving problems quickly as they arise.

    You will always get questions from the lender and experience is crucial in managing the process.

    Is it easy to get auction finance for first time buyers?

    For a first-time property owner, funding is available, but buying at auction is inherently risky and care should be taken.

    Can you fund development plots?

    Yes, we can fund the acquisition and development. We can fund land up to 65% LTV and can usually achieve rates from 0.95% per month for smaller plots.

    For larger plots with planning, where works commence immediately, we can offer full development finance from 5.65% over one month LIBOR.

    How do auction purchases work?

    When buying a property at auction, certain rules must be followed.

    Firstly, the winning bidder must pay 10% of the purchase price on the day of the auction. You must then complete within 28 days (for residential properties, commercial and land may have slightly longer deadlines to allow for more complex processing).

    What happens if you buy at auction and can’t get finance?

    You must have finance in place before purchasing a property at auction. Should you fail to come up with the money at the end of the 28 days, you stand to lose your deposit and the right to buy the property.

    By having an open conversation, you may get a limited extension of a week or two, anything beyond that is high risk and you are likely to lose out financially. This is why mortgages are not a popular choice for auction properties, as the processing is often too slow.

    Why do I need auction finance?

    Traditional mortgages can take time to complete, especially for unusual or commercial security. As a result of this, completing within 28 days may be an issue where finance is required to complete.

    Unlike mortgages, bridging finance can often be completed within 10-14 days, as such, they have become a popular option for those looking to finance auction purchases.

    Why use a specialist?

    Although this type of finance can complete quickly, that’s not to say that this will always happen.

    The process is not as straightforward as people often think and the key to making sure there are no delays comes down to solving problems quickly as they arise.

    You will always get questions from the lender and experience is crucial in managing the process.

    Providing an agreement for finance to the auction house

    As you’re committed to complete once you are confirmed at the winning bidder, it’s important to make sure that you will be able to secure the funding that you need.

    We are happy to work with you in the lead up to the auction to provide you with an underwriter backed agreement in principle.

    In addition, we can assess any points that you may be concerned about specifically, such as credit history issues, problems with the property or title or your proposed exit route.

    Refinancing your auction purchase with mortgages

    Once your purchase is complete, we are happy to work with you until your funding is repaid to ensure that your planned exit route is on track.

    Where your exit strategy is to refinance to a mortgage, we are happy to arrange this for you and can manage the entire process.

    about-the-author-gary-hemming

    About The Author

    This content was produced by our Commercial Lending Director, Gary Hemming. Gary has over 15 years’ experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans. He is widely respected in his field and regularly provides expert commentary for specialist trade publications, specialist business press as well as local and national press.

    Gary Hemming CeMAP CeFA CeRGI CSP  -  
    Commercial Lending Director

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