How To Fund A Time-Critical Auction Property Purchase
By their nature, all auction property purchases are time-critical to an extent.
Buying a property at auction brings many benefits – savings of up to 30% on a property’s market value, no agent fees whatsoever and so on. All very appealing, but with the small caveat of coming up with the full payment for the property within the four-week deadline.
With comparatively few exceptions, all auction property purchases must be paid for in full within four weeks. This renders conventional loans and mortgages entirely unviable, which for property purchases can take more than three months to arrange.
Auction finance by contrast is issued and arranged specifically for these kinds of property purchases and investments. An entirely faster and more flexible facility than a conventional mortgage, auction finance makes it possible to pick up low-cost properties at auction in a matter of days.
How Does Property Auction Finance Work?
Property auction finance is a specialist type of bridging finance, designed to help investors make time-critical purchase decisions at property auctions. A loan can be taken out to fund both the purchase of the property and all subsequent renovations required, with none of the delays associated with a traditional mortgage.
A brief overview of how the facility works:
- An investor reviews the properties set to go under the hammer at an upcoming auction and spots a bargain.
- Prior to the auction, they consult with a specialist broker to arrange pre-approval with an auction finance provider.
- They attend the auction and if their bid is successful, they pay the deposit on the property.
- After which, they return to their broker and their auction financial loan is arranged – typically taking just a few working days.
- The investor uses the funds to pay for the property and to cover the costs of the subsequent improvement work conducted.
- Upon completion, the investor either sells the property and uses the funds raised to repay the loan in full, or the loan is transitioned to a longer-term repayment product (like a specialist buy-to-let mortgage).
Auction finance is designed to be repaid as promptly as possible and is charged at a monthly rate of interest that can be as low as 0.5%. This makes it a uniquely cost-effective facility when repaid promptly, which is often the goal of investors looking to ‘flip’ properties for profit.
Who Can Qualify For Property Auction Finance?
Unlike traditional property loans and High Street mortgages, qualifying for auction finance is surprisingly straightforward. You simply need assets of sufficient value to cover the costs of the loan (usually your home or business property as security), and a viable exit strategy (how and when you intend to repay the loan).
Even with poor credit, a history of bankruptcy and/or no proof of income, it is still possible to qualify for affordable auction finance. Though in all instances – and particularly when time is a factor – it is essential to seek independent broker support at the earliest possible stage.