Buying properties at auction are becoming more and more popular potentially due to the rise in property development and TV shows about this. From first time buyers to property developers. If you are looking to buy a property at auction, auction property finance is a good route to take to ensure that you have the cash injection that you need to buy the property and carry out all the necessary work.
Due to the nature of buying a property at auction you will not know how much you are actually going to end up paying, you may get a bargain or you may end up stretching yourself to get the right property. Either way you will need to make sure your finances are flexible to ensure that you are able to secure a property at auction.
What happens at an auction?
Prior to the auction you should have decide on potential properties you are interested in bidding on. If you were to win the auction for a property you will be required to pay a deposit on the same day as the auction, the deposit is usually for 10% of the purchase price. You will also usually need to pay the rest of within 28 days of winning the auction. This is why ensuring you have quick access to flexible finance is so important.
Arranging auction property finance
Ideally getting a residential mortgage is the most cost effective way to finance your auction property. Getting an in-principle mortgage offer is needed before you bid on a property at auction. You will need to find out what lenders are willing to lend you and remember you will need the 10% deposit for the auction house deposit. This means that you will need a maximum of 90% mortgage. This method is undoubtedly the cheapest and least time consuming route to take.
If you go over the mortgage in principle offer you have received or you don’t manage to get a mortgage approved on time you will need an alternative route to ensure that you do not lose your deposit. An auction property bridging loan will help you to get quick access to funds to secure the property. This option is quick to set up and flexible but it undoubtedly the more expensive option. Bridging loans for property auction finance last a maximum of 2 years and are charged at a monthly interest rate of up to 1.5% of the loan amount.
Auction finance bridging loans
Property auction bridging finance is secured on an asset of your choice; however this is usually the property you’re buying due to the amount borrowed. They last for a maximum of 2 years and charge monthly interest rates up to 1.6%.
If you opt to go for a auction finance bridging loan you will also need to pay; valuation fees, arrangement fees and potential admin charges. Since this is short term finance it is essential to compare the market to find the best deal and rate to make the interest payments lower. Using a specialist financial broker is key to making sure you get the best deal.
What to consider
Make sure to really work out your finances to make sure that you do not over stretch yourself and risk defaulting on your auction finance. As with any kind of secured loan you will have to show the bank that you can afford the loan and have the means to make repayments. The aim should be to use the finance to secure the property at mortgage then getting a mortgage to pay off the bridging finance.
Get Expert advice
To to the complex nature of bridging loans and auction finance it is advisable to speak with a bridging loan finance broker who has experience and knowledge of the market. This will allow you to get advice and a financial product that best suits your needs.
Get in touch today to speak with an expert broker that will guide you through the process of arranging auction finance.