Do you know that many property owners need to sell their property quickly? Most of the owners are facing some financial challenges and repossession of property will likely to happen. Some may probably have family problems or need to relocate; that is why to sell the property fast is a need. Thus, the owner and the procedure to purchase the property through auction finance will not go through a complicated and lengthy process.

auction finance

Furthermore, Auction finance is a credit facility to purchase properties at auction. The arrangement can quickly and buy smoothly in timescales of the auction houses. Eventually, the credit platform is perfect for property developers to secure a property of below market value. Hence, if you are a first time developer, buying a property below the market price is an opportunity to get a good profit. Buying at the right price can make a difference.

On the one hand, if you compare to the traditional purchase of properties, it can be too risky. You will not have enough time to deepen your research and assessment to the property you are buying because of the limited time.

How does auction finance work for property developments?

Once you step inside the auction room, bear in mind that requirement of 10% payment as a deposit on the day if you will win the auction and you will pay the balance within 28 days.

One thing that you should always remember is that auction financing is fast. Moreover, the purchase price of 70-75% or open market value, whichever is lower, is available. So, you will need to deposit 25-30% in total.

Before the auction, link with the finance broker to assess your likelihood of getting finance on the property you want to buy. Hence, plan what type of property you would like to purchase and find an auction to attend. The following are the factors to consider:

  • Location of the property
  • Nature of the property
  • How will you pay the loan
  • How much you will borrow
  • Your credit history

As you head to the auction, be prepared to have an offer in principle. If you have won the sale, the finance firm arranges and process the formal valuation. Later, the firm will give the official proposal for your finance.

Here are the typical costs for Auction finance:

  • Lenders charge an arrangement fee of around 2%
  • If there is a broker, the usual charge is 0.5-1%
  • By the standard, you should pay the lender the legal and valuation fee
  • If you engage a solicitor, it will be at your own expense

Indeed, the entire post-auction procedures shall take within 7-10 days. You should get the financing in place by 6-12 months. Thus, there is enough time to complete any renovations if required to the property, refinance or sell it on.

Types of properties in auction finance

1. Residential Property

Most of the landlords are buying properties through auction financing. Later, these landlords would look to refinance the property. Not only companies or individual real estate professionals can access the facility but also self-employed or retired individuals.

Common loan specifications:

  • Rates are at 0.49% per month
  • 12-month term
  • Maximum borrow of up to 75% of the property’s value
  • Pre-approved funding
  • Some offer free valuations and legal fees

2. Commercial property

You might have spotted a property that is potential for business. Any property where more than 40% of the space will be for commercial use is considered to be a commercial property.

Common loan specification:

  • First charge rates from 1%
  • Second charge rates from 1.255
  • Up to 70% of a loan of the value of the property
  • Possible cross-charge

3. Semi-commercial property

These are properties where less than 40% of the space can be used for business and above could be a living space.

Common loan specifications:

  • First charge rates are from 0.95%
  • Second charge rates from 1.20
  • Up to 70% loan of the property’s value
  • Some charge free valuations
  • Possible cross-charge

4. Land

You can acquire land that is potential to put up a building or for farming. Some lenders look for planning permission to approve the property under auction finance.

Common specifications:

  • First charge rates from 1.25%
  • Second charge rates from 1.5%
  • Up to 50% loan of the property’s value
  • Possible cross-charge

Are you fit for auction finance?

Here are the following key points to consider if you want to avail auction financing:

  • You want to buy the property, but working capital is tied in the equity of your portfolio
  • Having the right amount of working capital and you aim to make money grow
  • Purchasing a more valuable property to return more significant profit potentially
  • Established track record as a property developer
  • If newbie on property development but have enough security to guarantee the lending firm