Property auctions are typically fast-paced, not just in the bidding process but also in the time it takes to exchange and complete. This makes them popular with investors and those who want to snap up a bargain. But where does this quick timescale leave you if you’re not a cash buyer? Can you borrow money for an auction property?
How long does an auction purchase take?
The length of time you have to complete your purchase depends on the type of auction sale you’re participating in. There are two types — conditional and unconditional auction sales.
Unconditional auction sale
This is the traditional and most common type of auction sale. You have to pay a 10% deposit as soon as you’ve won the bid and the contracts are exchanged immediately. At this point, you are legally bound to buy the property. The remainder of the purchase price then has to be paid in 28 days, which is when the transaction completes. Unconditional auction sales tend to be favoured by investors and are ideal for cash buyers or those who have arranged bridging finance.
Conditional auction sale
This is the modern auction method and it offers more flexibility, giving you time to arrange a mortgage. When the hammer falls, you pay a non-refundable reservation fee, which is usually up to 5% of the property price. This fee is paid in addition to the purchase price. You also have to sign a reservation agreement. You then have a 28-day exclusivity period before the contracts exchange. This gives your lender time to process your mortgage application and gives you time to do your due diligence.
Once the contracts have exchanged, you then have a further 28 days before completion takes place. This enables your lender to finalise your mortgage while you deal with other matters, such as arranging your property insurance and going over any outstanding details with your solicitor.
Why buy at auction?
As you can see from the timescales above, buying a property at auction is a quick process. It takes away the uncertainty of being gazumped, which often happens when buying a property through the traditional route. It also means that you don’t need to worry about being stuck in a property chain. This means that you can move into your new home or rent out your investment property in a matter of weeks without any hold ups.
You have the potential to get a great bargain when buying at auction compared with the open market. You also know exactly what everyone else is bidding, which isn’t the case when making an offer via an estate agent. There are also fewer costs — for example, you don’t need to pay an estate agent’s fees.
Can you borrow money for an auction property?
Not everyone is lucky enough to be a cash buyer but you don’t need to be to buy at auction. Instead, you can borrow the funds you need to finance your purchase. One way is with a mortgage, as long as you’re prepared to act quickly. The other is with bridging finance, which is quick to arrange and a short-term funding solution.
Arrange a mortgage
As the auction timescale is so quick but a mortgage takes time to process, you need to prepare as much as you can in advance if you’re considering using a mortgage to finance your purchase. First, it’s essential to get an agreement in principle before attending an auction. This lets you know what the lender is prepared to offer you and, therefore, the maximum price you can bid to.
You also need to let the lender know that you intend to buy an auction property so that they’re ready to process your application as quickly as possible. Not all mortgage lenders are happy to deal with auction purchases but our brokers know which ones are experienced in this field and will approach the right ones on your behalf.
Your lender will require a property valuation and it’s recommended to arrange this in advance to save time between exchange and completion. If the valuation is unsatisfactory, the lender may refuse to approve your mortgage loan so don’t leave this to chance.
Lenders also generally only offer mortgage loans for immediately habitable properties so be sure to check the condition of the property before the auction. Like the valuation, it’s advisable to have a survey carried out in advance. If you don’t and discover that significant work is needed, the lender can refuse your mortgage application. Whilst paying a survey fee can be seen as wasted money if your bid is unsuccessful, it can prevent a lot of unexpected issues, costs and delays that may otherwise be experienced.
Secure a bridging loan
Auction finance is a type of bridging loan and is an ideal way to get access to funds quickly for an auction purchase. As a short-term solution, it removes the stress that comes with a quick auction timescale and gives you breathing space while you arrange your longer-term finances. With the funds readily available before the auction begins, you can be confident in your bidding and know that you can complete on your purchase without any issues. It removes the risk of unexpected delays that can occur when arranging a mortgage.
Auction finance is also more flexible than arranging a mortgage. This includes the types of properties you can buy, such as residential, commercial, mixed-use, unmortgageable, HMOs and agricultural as well as land. For example, auction finance is ideal for buying a property that needs renovation. Once you’ve completed the work to bring it up to standard, you can switch to a mortgage as your long-term finance.
It also offers flexibility with your circumstances when it comes to assessing your eligibility for a loan. Each application is assessed on a case-by-case basis. Different auction finance lenders specialise in different areas, such as catering to first-time buyers, those buying a commercial property or borrowers with bad credit. Our mortgage brokers can match you with the lender most suited to your situation. Due to the speed and flexibility of auction finance, the interest payable is higher than for a mortgage.
Secure a loan for your auction purchase
Our mortgage brokers are well-versed in dealing with loans for auction purchases. Choosing the right lender, not just for an auction purchase but to suit your circumstances, is key.
We work closely with lenders who are experienced in dealing with mortgages for auction purchases and, therefore, are used to dealing with the fast timescales involved. Our brokers can arrange your mortgage in principle and the property valuation in advance, saving time and ensuring you’re prepared. When the hammer falls, your dedicated broker will liaise with the lender to ensure a smooth transaction through to completion.
If you prefer to arrange auction finance, our brokers can approach the lender most suited to dealing with cases that match your circumstances. That way, you can secure the best deal for your needs with the most favourable rate.
To arrange a loan for your auction purchase, just give us a call on 01322 907 000. We can guide you through the auction process and work quickly to arrange the funds you need exactly when you need them.