Leicestershire, UK, July 20, 2017 - Buying a property at auction is very different from doing so via conventional channels. Property auctions can be great for capitalising on unmissable investment opportunities. But at the same time, you’ll need to make sure you have the required capital available to complete the purchase.
Which is where auction finance comes into the equation. Similar in many respects to a bridging loan, auction finance provides the buyer with a short-term loan to cover the purchase of the property.
How It Works
If you plan to purchase a property at auction, you’ll first need to ensure you have the required 10% deposit to pay on the day. This secures the property when the winning bid has been determined, after which you’ll usually have 28 days to pay the rest of the balance.
For obvious reasons, a standard mortgage is entirely out of the question. So too is a typical personal loan, which along with being insufficient in value may take far too long to arrange. Auction property purchases move at a pace standard banks and lenders simply cannot keep up with. For this reason, an intelligent alternative solution is required.
The key difference with auction finance is that depending on who you work with, it can usually be arranged in no more than a few days. Attend the auction Monday and you could receive the money you require before the end of the working week. In most instances, a maximum of 75% of the total price of the property will be offered in the form of auction finance. Though there are instances where 90% or even higher may be offered – all determined on a case-by-case basis.
In terms of qualification, there are essentially two means by which a borrower can qualify for auction finance.
The first of which being that they secure the loan on the property being purchased. In which case, the lender will take into accounts various considerations, including the nature of the property, its location, conditions, potential resale value and so on. Should the sum borrowed not be repaid as agreed, the lender takes ownership of the property. For these kinds of loans, it is usually necessary to have a strong credit score.
Alternatively, the loan may be secured on existing property. If the borrower already has a property valued at £200,000 for example, chances are they’ll find it easy to obtain a secured loan to the value of £100,000 to buy a property at auction. In which case, credit scores don’t come into the equation.
Lastly, auction finance is also similar to a bridging loan when it comes to repayment periods. Specifically, auction finance is typically repaid over a much shorter period than a conventional loan – usually between six months and two years. In addition, the sum is usually paid back in one lump sum, rather than monthly instalments.
Though with much lower interest rates than a typical loan or mortgage, auction finance often represents outstanding value for money.
Before considering an auction property purchase of any kind, speak to an independent financial broker to explore all available options in full.
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