Short-term finance is perfect for those looking to buy a property under the hammer.
Buying at auction is hugely popular and still on the rise, for good reason.
It’s possible to pick up a bargain, both as a short-term renovation project or for long-term buy-to-let with a rental income.
As well as the potentially low price, the purchase process moves extraordinarily quickly. The buyer owns the property within a month of auction day and, without property chains, there’s far less chance of the sale falling through.
Finding funding
It’s not usually possible to secure a mortgage within the timescales required by auction houses. The successful bidder exchanges contracts and pays a 10% deposit on the fall of the gavel and must complete within 28 days.
It can take longer than this to get an offer from some mortgage lenders, let alone complete.
On top of this, many properties sold at auction are simply not mortgageable. They often need major improvement works, which means a mainstream lender won’t touch them.
However, specialist short-term lenders are experts in this sector, making a bridging loan both quick and easy to arrange.
The loan usually lasts up to one or two years, allowing time for the completion of any renovation work and the exit via sale or refinance.
Bridging loans are available up to 75% of the auction purchase price, plus a lender may also cover the costs of refurbishment.
If you are considering a purchase at auction, follow these steps to ensure you secure funding and meet the timescales.
Step-by-step guide to auction finance
1. Talk to a lender or broker before the auction and get an acceptance in principle, or outline terms, agreed. This means you can bid in confidence and know your limits. In practice, not all buyers get funding in place until they’ve successfully won at auction, when the clock is already ticking (in which case, jump to step 6).
2. Find out what documentation you need from your lender in advance of the auction and request the bridging loan application.
3. Visit the property and get any required checks or surveys done before the auction.
4. Download the legal pack and have your solicitor go through it to check everything is in order. Ensure you use a solicitor with experience in short term property finance.
5. On auction day ensure you have proof of ID and enough money to cover a 10% deposit, available in cash or an easy-access account.
6. If you’re successful at auction, get the wheels in motion on the funding application. Don’t let it slip even a few days!
7. To apply, you’ll need the sales agreement, proof of purchase, a link to the property listing, completed application form and other relevant documentation, including evidence of deposit monies. You should be ready to pay the valuation and legal fees.
8. Once the valuation is done and the report is back, the case is formally signed off.
9. When the solicitors are ready, the funds are released to complete the purchase, well within the 28-day timescale.
10. Service doesn’t stop at completion. The post-completion team keeps in touch, checking that improvement works are on track, so the loan can be exited successfully either by sale or refinance onto a buy-to-let mortgage.
What should you look for in a lender?
• Speed is clearly important, so ask prospective auction finance lenders about their current timescales. They need to be able to give you a decision in days and the funds in weeks.
• Experience in arranging funding for auction purchases is also important. Do they have experts who know the usual pinch points and pitfalls and how to navigate through them? Does the lender have underwriters with the commercial nouse and freedom to make decisions and push the deal through?
• Service is also essential when timescales are tight. You want to be kept up to date with your application and then your case post completion, and if you need to call, get the help you need. It is important to keep the lines of communication wide open. Check if the lender offers a dedicated point of contact and access to the underwriter.
Why work with Roma Finance?
Roma is an expert in auction finance with a ‘borrower first’ philosophy. This means we build relationships with customers looking to add value to property and take them through the process step by step. This doesn’t just stop when the funds are released. Our team will provide ongoing support throughout the life of the project and beyond, to ensure you achieve the best possible result from your finance.
Roma is award winning, offering security in bridging finance and an opportunity for borrowers to build a highly lucrative property business. We are bolstered by multiple funding lines and empowered decision makers, meaning we can be agile and make quick decisions; exactly what you need when an auction purchase is at stake.
We invest inwardly, ensuring our team have all the knowledge and tools to provide the best possible support. It is for this reason that our customers return to us again and again and we attract an exceptionally talented team, some of whom are landlords and property developers themselves.
Contact Roma for a free strategy call with an experienced specialist.
#Lovetolend is our mantra and we look forward to working with you.
