How Does Auction Finance Work?
OK, so you’ve found the place you wanted to bid on, done all your homework and now the big day of the auction has come and you have won the bid – fantastic! You pay your 10% deposit and now you have 28 days to find the rest of the money. If you have some savings or are selling an existing property to fund it, that is great, but if you have zero money left or need a little extra to fit the bill, this is where auction finance comes in.
At Octagon Capital, we work with a number of bridging lenders in the UK so that your requirements can be considered on an individual basis and we can find the right loan product for you. We allow customers to borrow between £50,000 and £25 million and provided that you meet the criteria and complete all the final tasks, you can receive the funds you need in typically 10 to 14 days so that you can complete on the property.
For more experienced and established developers, we can suggest lenders who can give you an ‘agreement in principle’ before you arrive – so you can have the finance ready before you even attend the auction.
What Are The Benefits of Buying Property at an Auction?
The main advantage of purchasing a property through an auction is the potential discount you can get. Whether the property has failed to sell, needs a lot of work or is probate and the family are looking to raise funds, if you catch the market at the right time, you could buy the same property at a 20 to 30% discount of the normal market value. (Source: Moneywise).
The process also appeals to the investor or individual that does not like to go through the lengths taken to get a mortgage, which involves heavy paperwork, meetings and several weeks of waiting to get a decision in principle and approval. However, with auctions, you simply have to provide a 10% deposit on the day and then you have up to 28 days to pay the outstanding balance, giving you the chance to raise money if necessary.
Once that gavel hits, you have a legal obligation to go ahead with the purchase. Whilst this might put pressure on you, in fact it means that your bid for a property cannot be gazumped by anyone else. This gives you real peace of mind that you deal is not going to fall through or get taken by another party and is another reason why some people prefer auctions.
If the property is for you and your family, there is the added bonus that you can move in quickly. After all, you have to complete within 28 days so you can practically move your stuff in already. No need to wait several weeks or months to move in like you would do with a regular property and mortgage.
What is The Criteria For Auction Finance?
As soon as you make an application, we will request more details about the property you have just won at the auction. We have the property valued by an appointed surveyor and discuss your future plans with the estate. Whether you plan to live in the new home permanently or wish to fix it up and re-sell it, will have an impact on the terms of the loan. Since your auction finance loan will be secured on the property, understanding its value and future value will be key to your application being approved.
If Octagon Capital puts you in touch with a lender that is regulated by the FCA, they will carry out various credit checks to get an idea of your repayment history for other loan products. You will also be required to provide proof of income and affordability, so we can get an idea of how much you can afford to repay each month and the best repayment method. If you have a monthly salary, perhaps you will be best suited for making monthly repayments but if you are a property investor and need to re-sell this home to generate income, we can look at rolling up the interest for you. For a regulated lender, the maximum loan-to-value (LTV) you can expect is 70%, so if you are looking to raise £500,000, the most you can borrow through our lenders will be £350,000 (so after your 10% deposit, you will have only 20% left to raise).
For non-regulated lenders or ‘non status’ as they are known, there are no credit or affordability checks required. Instead, the emphasis is on the value of your property, which of course, the lend may be able to repossess if you do not keep up with repayments (although this is a rare outcome). The non-status lenders we work with allow you to borrow up to 75% loan-to-value (LTV) which can help you if time is ticking and you need to reach your target.
What Happens Next?
Based on the procedures of one of our lenders, if you wish to proceed with our initial offer, we will give you an official Offer in Principal (OIP). Once we receive the signed OIP we will liaise with our appointed RICS valuer to arrange an appointment with you to value the property. Our panel valuers are instructed to produce reports within 72 hours so the process can be facilitated as quickly as possible, after all, we appreciate that you have a 28 day deadline.
We will also need to liaise with your solicitor and send them our checklist of requirements. Provided that the property valuation is up to scratch, our lawyers will send your lawyers the mortgage deed for signature. To finalise everything, you will need to visit your lawyers and provide at least one piece of photo identification and two pieces showing proof of residence (e.g utility bill and bank statement) as these are required to sign the mortgage deed. Once our lawyers receive this documentation, we are ready to go and your funds will be released so you can complete!
Apply For Auction Finance