Guide to Auction Finance
When purchasing property through the auction bidders should be aware of the conditions and contractual arrangements on the day. Preparation is essential to this purchase process.
During the sale of the lot, the winning bidder is contractually bound to complete the purchase. A 10% deposit is collected by auctioneers and the bidder is allowed 28 days to complete the purchase. There may be an additional ‘notice period’ permitted if delays occur. However, this is usually for a maximum of 10 working days after the 28-day initial period. Buyers should take time to carefully assess the subjective conditions of each auction.
Things to consider before buying though auctions
What are you Bidding on?
Check the Use Classification and ensure it is what you require.For example, a typical single dwelling C3 Use Classification home may have been converted to a C4 HMO (Homes of Multiple Occupants).
A commercial building could appear to be residential.Never judge a book by its cover.You can usually find the authorised Use Class on the Council’s Planning Portal. If you’re unsure you can approach a number of professional firms for guidance such as
Stamp Duty Land Tax Calculator
Why are you buying this Property?
Are you looking to buy and sell? Buy refurbish, retain?
Consider the costs of acquisition, financing, development and refurbishment costs and the expenses of either selling or retaining.
Ensure you keep a contingency fund to cover any potential cost overruns, delays, void periods, etc.There are many risks to your investment, so you need to carefully consider them and discuss with suitable real professionals such as Finance Brokers, Architects, Builders/Contractors, etc.
Disposing of the property bears costs such as marketing, agents and legal fees Always bear in mind a crucial factor; Taxation. You must seek independent tax and legal advice regarding acquisition, retention and disposal of the property. Failure to do can arise in unexpected burdens along the way.
You may wish to refinance the property onto a term mortgage.You should explore the lending options available to you and the property.It is vital you Approve in Principle ‘AIP’ a mortgage to ensure repayment of the auction finance loan.Remember, with all types of Short Term Finance, the interest charges are high. Repaying such high interest charges quicker will result is a preferential financial position.
Have you take tax advice on how to purchase the property?
Changes is taxation policies regularly occur. There are many matters to consider when buying through a Limited Company, SPV, LLP or as an individual. It is essential your seek tax advice from a suitable qualified tax advisor.
How do I repay an Auction Finance Loan?
**Important**
WHAT IS YOUR EXIT STRATEGY?
Auction Finance is similar to Bridging Finance, its Short Term funding and designed for rapid completions at a high rate of interest.Usually Auction Finance Loans run for a maximum of 12 months with the exception of a number of lenders who may allow a term of up to two years.There are a small number of lenders who will offer a term of up to three years.Be sure to project your financial position towards the end of the term and beyond.
Key matters to consider
Can this property be sold in its current condition ensuing your capital is recovered?
if not - What are the costs of achieve a successful sale?
Can you refinance to a mortgage loan? And do you qualify for a mortgage loan? (speak to our advisors abut mortgage eligibility)
Do you have sufficient equity from your own resources/family to redeem an auction loan?
Always review all available information. Many auction houses publish these on the Lot page. Typical examples include:
Title deeds
Local authority searches
Environmental searches
Fixtures and fittings list
Sellers information form
Leasehold information
