Property Auction Finance: 4 Things To Know

Property Auction Finance
Property Auction Finance

Buying a property at an auction is pretty straightforward. If you’re the highest bidder, you get the property. It’s that simple. 

That said, timing will be your number one enemy. Once the auctioneer’s hammer falls, you have to comply with tight payment deadlines that can go as long as 28 days or as short as 7 days. 

Unless you have already planned about this or have a large sum of cash lying around, traditional forms of borrowing such as bank loans and mortgages are not a good option because they take too long to process. 

This is where property auction financing comes in. Read on to know more about this type of financing. 

  1. Property Auction Finance Is A Type Of Bridging Loan

Property auction financing falls into the broad umbrella of bridging loans, a short-term financing option that helps pay for the purchase of a new property while selling your current property. 

In the case of property auction finance, it is specially designed for those buying property at auctions. Unlike other regular bridging finance, property auction finance is quick to arrange and receive funding. This is good news for the auction buyers who need to comply with tight payment deadlines after the hammer has fallen. 

In the UK, buying property at auction will require you to have 10% of the purchase price available and deposited once the auction ended. Then, you’ll have to pay the rest within 28 days (on average). Property auction finance is well placed to meet those short deadlines. 

  1. You’ll Get Your Funds In 2 Weeks And Is Payable Up To 36 Months
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Like regular bridging loans, property auction finance is offered on a short-term, interest-only basis. 

Each lender has its due diligence process and how fast it can provide you with your funds, but on average, most lenders can provide the funds within two weeks of your application. Yet you should have enough deposit or another asset or property as security as well as a clear exit strategy. 

Meanwhile, the term length for a property auction finance is shorter than a traditional mortgage. Most lenders will give you 12–24 months to repay, but some can agree to give you up to 36 months. 

  1. There Are Several Types of Properties It Can Finance

A property auction finance can be used to purchase a broad range of property types. These include:

  • Residential Property

This is the most common type of property available for auction and suitable for property auction financing. A property investor or landlord can choose property auction finance to secure a residential property ahead of seeking a buy-to-let mortgage. 

  • Commercial Property

With property auction finance, a business owner can secure new or additional properties without tying up working capital. You can find all kinds of commercial property offered at auction including restaurants, pubs, shops, warehouses, and offices. 

  • Foreclosures

Foreclosure or repossessed property occurs when the lender takes possession of the property if the occupier or owner can no longer pay the mortgage. The seller is after an uncomplicated and quick sale via auction. Foreclosure can also happen to buy-to-let and commercial property owners as well as newly built homes where developers haven’t moved stock fast enough.

  • Mixed-Used Property
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Property auction finance is a good option for developers looking to take on a renovation or conversion project for a property that’s part residential and part commercial. A business owner can also use property auction finance to buy extra space that suddenly becomes available. 

  • Land And Agricultural Property 

Property auction finance allows buyers to acquire land and agricultural property with or without planning permission. That said, due diligence is often carried out to avoid the risk of permission not being granted. Yet once approved, long-term finance can be arranged via a self-build mortgage.

  • HMOs

Most property professionals look to auctions and use auction financing to buy up HMOs. Short for house of multiple occupations, HMO is a property rented out by at least three unrelated people. 

  1. You Can Expect Higher Interest Rates

Interest rates for property auction finance are higher than traditional mortgage rates. However, the exact amount of interest you get will depend on each lender and the quality of your application.  Moreover, lenders may charge interest in three ways— retained, monthly, and rolled up. 

Takeaway

Property auction financing is a highly flexible and favorable option when buying a property that passes under the hammer. It provides you with the funds needed at such short notice, unlike most available traditional loan types. This way, you can comply with the short payment timeline of auctioned properties.

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