How To Secure Auction Financing: Mortgage Solutions For Property Auctions In The UK

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Purchasing property at auction can be an exciting way to secure a deal, but arranging finance quickly is vital. This guide explores mortgage options to have funds readily available on auction day in the UK property market.

Hers is how one can secure auction financing in the UK.

Understanding The UK Property Auctions

Property auctions allow buyers to bid on and potentially purchase homes and commercial property. Auctions move fast, with registration, viewing and bidding for properties packed into a few weeks. Once the hammer falls, buyers typically must put down a 10% deposit immediately and complete payment within 28 days.

This accelerated process provides an opportunity to secure properties at discount prices. However, buyers need financing ready before auction day to capitalise. Understanding available mortgage solutions helps you bid confidently.

Securing Finance Early is Crucial

Arranging an appropriate mortgage or finance in advance is key when buying a house at auction UK. Without confirmed funds, you cannot make the deposit payment to secure the property.

Mortgage applications also require extensive paperwork and approval can take 6-8 weeks, beyond the 28-day payment window. Finance needs to be lined up and approved before you even consider bidding.

You should have a thorough understanding of the property’s value, condition, and purchase costs to determine the lending amount required. This preparation ensures you can act decisively to secure your desired property when the hammer falls.

Considering Financing Options for Auctions

When considering a property purchase at auction, it’s essential to explore financing options that differ from the conventional home loans used in traditional property transactions. Some of the considerations in this context include bridging loans, which are designed for short-term financing, enabling you to complete the property purchase while making arrangements for a mortgage; however, it’s important to note that they typically come with higher interest rates. Another option is homeowner loans, which allow you to release funds by leveraging the equity in an existing property to finance the auction purchase. In the case of commercial property buyers, business loans, and commercial mortgages may be sought as short-term financing solutions. Additionally, for those purchasing jointly with a partner, joint mortgages provide the opportunity to combine finances for the purchase and arrange for longer-term financing. Thorough research of the available lending products is crucial for a comprehensive understanding of the associated costs and limitations involved in auction finance.

Turning to Mortgage Brokers for Auction Lending

Mortgage brokers play a pivotal role in facilitating the process of securing auction finance, offering invaluable assistance in navigating this unique and time-sensitive aspect of property acquisition. Brokers have access to a broad network of lenders, including niche lenders and specialised products specifically tailored to auctions. These may include bridging lenders who are experts in providing short-term financing for auction purchases, enabling swift assessments of lending criteria and ensuring funding for timely completion. Additionally, brokers are well-informed about mainstream lenders with experience in handling the fast-paced auction process, making them well-equipped to connect buyers with lenders who can accommodate these unique circumstances. They also have access to specialist auction mortgage products from lenders that offer enhanced flexibility and expedited turnaround times. For properties requiring renovation, brokers can source refurbishment mortgages that include funds for scheduled works. Effective brokers comprehend the urgency associated with auction buying and can quickly match buyers with the most suitable and expedient finance options to secure their desired properties.

Providing Documentation for a Fast Mortgage

To expedite the process of securing financing for an auction purchase, it’s crucial to have essential paperwork readily available for lenders. This documentation includes proof of deposit, which demonstrates your ability to cover the required 10% deposit through bank statements or verified funds. Additionally, providing current mortgage statements for any existing properties you own, as well as income evidence such as payslips, accounts, tax statements, or related documents confirming your income, is essential. To verify your identity, ensure you have certified copies of passports, driving licences, and utility bills ready. Be prepared to release details of your credit file and score to establish your borrowing profile, and for properties requiring refurbishment mortgages, have detailed surveys on hand that provide evidence of the necessary renovation works. This meticulous preparation of documentation significantly streamlines the lending process and ensures a smoother and more efficient path to securing auction financing.

Factoring in Financing Fees and Contingencies

When budgeting for an auction purchase, it’s essential to include various financing costs to ensure a comprehensive and realistic financial plan. These costs encompass application and arrangement fees associated with securing lending, legal and valuation fees necessary for finalising contracts, and survey costs if required by the lender. Additionally, it’s important to account for higher stamp duty, which applies to additional properties. There may also be insurance premiums you need to secure finance. In addition to these direct costs, it’s prudent to allow for contingencies, such as the potential need for short-term bridging finance, which typically carries higher interest rates, while awaiting a traditional mortgage. Contingencies should also cover scenarios, where renovation works on a refurbishment project, exceed the initial estimates or unforeseen delays arise in finalising contracts or payments. By building in this financial buffer, you can ensure that you have the necessary resources to cover all eventualities when financing an auction property.

Securing Contingent Mortgage Approval

A powerful strategy is getting advance mortgage approval before auction, also known as a conditional or contingent mortgage: This confirms a lender is willing to offer financing based on seeing accurate property valuations and surveys after purchase. It provides certainty you have finance available, enabling you to bid confidently. Contingent approval is usually valid for a set period, giving you time to complete post-auction due diligence. If you don’t win the auction, the approval expires so you aren’t obliged to the lender. Contingent mortgages enable you to seize auction opportunities knowing funds are in place.

Acting Quickly Post-Auction for Mortgage Finalisation

Once you’ve secured your winning bid at an auction, prompt and efficient action is crucial to finalise contracts and complete the necessary mortgage paperwork. It’s essential to instruct solicitors immediately to kickstart the legal process and arrange for an in-depth property survey to be completed within a matter of days. Simultaneously, you should submit the full loan application to your lender, including all the required supporting documents. Timely response to any additional paperwork or requests from the lender is essential, and maintaining close communication with both solicitors and lenders is paramount to address any issues that may arise. Flexibility is key, and you should be open to the lender’s suggestions for different financing products that can expedite the completion process. Lastly, it’s crucial to ensure that the lender has cleared funds ready for contract exchange and completion dates, as efficient follow-up and coordination are necessary to meet auction deadlines and finalise your mortgage in a timely manner.

What to Do If Financing Falls Through

In rare cases, buyers might win an auction bid but fail to secure expected financing in time to complete. This default could result in losing your deposit. Strategies to avoid this outcome include:

  • Agreeing extendable completion dates in the auction contract to allow more time for financing should any delays crop up.
  • Bidding on properties you can self-finance through existing equity or savings as a backup.
  • Consider taking bridging finance to complete the purchase while you reapply for a mortgage.
  • Make contingency plans to temporarily let the property until you arrange funds, if allowable.
  • Discuss options with the auction house and seller before defaulting if difficulties arise.

Proactive planning equips you to handle any financing setbacks and retain your purchase.

Conclusion: Get Ready for Auction Success

Buying property at auction allows you to expand your portfolio and secure potential bargains, but only with funding secured in advance. Work with specialist brokers to obtain necessary lending offers or contingent approvals ahead of any bids.

Have paperwork and finances in order, understand added fees, and be ready to act quickly post-auction. This preparation ensures you can move decisively to purchase your desired property. Follow these steps to finance your next auction acquisition with confidence.

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