Looking to buy a Property in a Auction but want to know how much you can borrow and how you can complete in less then 30 days.
One of the most fundamental things you need to put in place before you go to a property auction is finance as most auctions will require you to complete on a purchase within 30 days.
Below I discuss the pitfalls of using conventional mortgages for auction finance and offer a more suitable alternative so you can be confident when you’re bidding for property in an auction house.
Traditional Mortgage financing – Why you shouldn’t use a Mortgage to finance Auction property
If you came to me a few years ago and said I would like to buy a property and need to complete within 30 days I would have had a whole raft of conventional mortgage lenders at my deposal. The competition was fierce on service as well as price, and 30 days was an achievable and viable option, and together we would have probably gone down this route.
Furthermore products were so attractive that I would be able to find you a deal without any early repayment charges, so if you were looking to renovate and shift the property, the time frame was no barrier to penal charges.
For some of my sophisticated clients I put a ‘cheque book facility’ in place with their lender which meant that they could drawdown money against their existing property as and when required. The underwriting was pre-agreed and the transaction seamless and perfect for securing the purchase at an auction. These type mortgages are very difficult to facilitate in this hardened lending era.
If you apply the same situation to today it is not uncommon for a mortgage to take 3 to 6 weeks to arrange as the underwriting it much more onerous. So for the majority of auction purchases this would fall outside the timeframe and inappropriate due to the level of risk. The early repayment charges typically last for 2 to 3 years.
As an addition factor some of the arrangement fees imposed by the buy-to-let mortgage lenders are colossal, and in my view disproportionate to their overheads; they are simply exploiting the purchaser as the competition is small and almost operating like a cartel.
Our Finance Solution for Auction Property Purchases
All in all, those in the know, typically the developers, are steering clear of conventional mortgages in favour of more flexible finance which works like a revolving overdraft facility and is perfect if you are looking to go on a spree of: purchasing, renovating and selling property.
Finance that looks past a rigid ‘purchase price’, which conventional lenders based their sums on, to the actual ‘market value’ – which is essential as by definition a auction sale is not reflective of a property’s ‘true value’ it is akin to a ‘fire sale’. For example, you bid £80,000 and secure the property knowing it is worth £100,000 with a lick of paint – the flexible finance will lend against £100,000. Thus securing a greater percentage of borrowing which can be used to put towards the next purchase. Whereas the conventional mortgage lender would base maximum the percentage of borrowing on £80,000.
Seasoned developers appreciate the best way to realise a premium is to replace the kitchen or bathroom, and in the case of repossessions these rooms may be derelict. Conventional mortgage lenders shy completely away if either of these rooms is dysfunctional. Again, the flexible finance auction finance we can provide is not concerned.
In short, our finance will work much smarter for, providing the necessary cash-flow to make the dream becoming a property developer much more achievable.
For more information on how we can help with your Auction Finance requirments , please contact us on 0207 993 2044 or alternatively complete the simple enquiry form on the top right hand side of this page.
Payam Azadi is a partner at Niche Advice Ltd who are Independent Financial and Mortgage Advisers in London.
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Mortgage Brokers. His role is very much focused on Property financing both on residential and commercial lines.