your 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 too such as marketing, agents and legal fees Always bear in mind a crucial factor; Taxation.
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.
How do I repay an Auction Finance Loan?
The most important question..
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 will 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 lender 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.