How To Secure Financing For Your UK Auction Property: Mortgage Options And Advice

Purchasing a property at auction can be an exciting way to secure a bargain home or a promising investment opportunity. However, organising finance is crucial for auction success. Without funds readily available on auction day, you risk losing your dream home and deposit. Financing an auction purchase presents challenges compared to traditional methods. Mortgage lenders are often reluctant to loan against auction properties unseen. This guide explains financing options for auction buyers, plus tips for maximising your chances of securing a competitive mortgage. With the right strategy and preparation, you can bid confidently and gain the keys to your ideal houses for sale at auction.

Saving a Sufficient Deposit

Auction properties require paying a deposit, normally 10% of the purchase price, on the fall of the hammer. You must provide these funds upfront before auction day or risk losing any bid. Save early so your finances aren’t a barrier once you find the right lot. Be disciplined salting away as much as possible into a high-interest savings account. Cut back on unnecessary outgoings to build your deposit faster. Research typical sold prices in your target locations so you know the approximate deposit size needed. Study auction house terms – some require paying the full purchase price within 28 days post-auction. Understand the financial commitment before bidding to avoid issues later. Keep savings readily accessible for clearance on auction day.

Seeking Mortgage Approval in Principle

Receiving mortgage approval before the auction provides confidence you can complete a purchase. Approval in principle shows lenders assess whether you can afford repayments based on income, existing debts and credit rating. High street banks and brokers offer these online or over the phone using simple eligibility calculators. While not a cast-iron guarantee, it indicates your borrowing power for auction budgeting. Remember many lenders are unwilling to mortgage unseen auction properties. So only rely on approval in principle as a rough estimate of what’s achievable. Firm offers only come later once the lender inspects the specific property. But upfront approval gives useful insight into how much you can potentially borrow.

Researching Suitable Mortgage Options

Mainstream mortgages usually exclude auction properties, so specialist finance is needed. Research products from lenders specialising in auction buyers. These include dedicated auction finance from high street providers like Lloyds, or services from brokers like Enness Private Clients. Understand criteria – some require minimum deposits of 25-30% of property value due to the higher risks of auction buys. Interest rates are often higher as well. Short-term bridging loans provide funds needing repaying within 12 months – useful for renovations before remortgaging. Alternatively, there are longer fixed-rate products if you plan to hold the property. Always read the small print and evaluate whether a mortgage is affordable based on expected rentals and your existing commitments.

Opting for Joint Borrowing

Mortgage affordability is assessed on your income compared to outgoings. Buying with a partner or family member allows combining two salaries on a joint application. This potentially unlocks a higher maximum borrowing amount. Lenders calculate affordability based on the joint income less both parties’ existing loans and debts. Have your finances rigorously assessed to see the difference joint borrowing could make to your auction budget. Just beware, joint borrowing means both names on the mortgage. So if one person fails to keep up repayments, you both risk losing the property. Make sure you thoroughly trust any joint applicant before proceeding.

Engaging a Broker

Mortgage brokers have expertise in navigating auction financing which first-time buyers will lack. They identify suitable products matching your borrowing requirements. Established brokers have contacts at niche auction lenders who can facilitate approval for tricky cases. A broker’s negotiating influence with these lenders may secure you preferential rates lowering costs. They manage paperwork and liaise with the lender to progress applications, chasing urgently when deals risk stalling. The right broker battles in your corner cutting through red tape. Paying broker fees could save thousands in interest charges over time by securing the optimal deal. Some even guarantee to find you finance or cover the shortfall themselves. For access to exclusive deals and guidance at each step, engaging a broker makes mortgage applications smoother.

Preparing Necessary Paperwork

Mortgage lenders scrutinise applicants’ financial credentials before approving loans. To appear attractive, have all paperwork evidencing income, debts and credit history ready. This includes recent wage slips, bank statements, existing mortgage details, credit reports and proofs of ID. Keep these updated because lenders will vet figures right up to the exchange. Missed payments or new debts arising could jeopardise your application. Check your credit file for errors that could impact scoring – get any blemishes explained or erased. The better prepared your paperwork, the faster brokers can submit completed applications and get decisions. Delayed paperwork slows the process and risks deals expiring before the auction exchange.

Evaluating Property Potential

A property’s potential uses and value boosts your chances of securing finance. Lenders feel more reassured lending against assets with strong investment appeal and solid demand. Seek lots with the potential to add value through refurbishment, conversion or extension. Cosmetic improvements also maximise future sales appeal. Target homes in up-and-coming areas where rising prices indicate investment potential. Check for strong local sales by researching online price comparison sites. Ideally, find tenants ready to move in quickly post-purchase to cover your mortgage payments. Make use of open viewings to gather evidence supporting your property’s prospects as a stable investment. This provides brokers powerful ammunition to negotiate finance on your behalf.

Cleaning Up Your Credit Rating

A clean credit history and minimal existing debts help demonstrate you’re a low-risk investment to lenders. Use your free annual credit report to check your file. Ensure there are no missed payments showing. Submit challenges if you spot any wrong information sullying your rating. Reduce unsecured debts like credit cards and loans to lower your debt-to-income ratio. Avoid applying for other finance in the run-up to the auction as too many credit searches suggest financial desperation. Pay all household bills on time. Follow these measures for a 6-12 month period – this shows positive financial habits proving you’re mortgage-worthy. Aim for green or at least amber TrustScore on ClearScore for the best shot at approval.

Having Renovation Plans Ready

Many auction listings require modernisation to realise their full value. Lenders need confidence the property will be restored and tenanted to fund the mortgage. Provide detailed costed renovation plans showing works required. Get quotes from builders evidencing you have budgeted accurately. Include a project timeline with completion dates for major works. Research local rental prices on comparable properties to show achievable income once ready to let. For bridging finance, outline how refurbishment will boost value allowing remortgaging to repay the loan. This convinces lenders you have the skills and resources to successfully restore the property as a viable investment.

Considering Alternative Financing

If mortgage efforts fail, there are other routes to secure your auction bid. In-house financing and bridging loans are available at houses at auction, giving you a chance to sell a renovated property during the renovation process. Similarly, property developers may jointly invest in refurbishment and then share proceeds when selling. You may be able to borrow money privately from family, friends or business partners. Compare interest rates and weigh obligations – a bank loan still gives more independence. Only consider high-interest financing like payday loans or credit cards as a true last resort. If alternative financing isn’t feasible, wait for another suitable auction lot to arise further down the line.

Attending Auctions in Advance

Get insight into the auction process by attending as an observer first. Watch several auctions monitoring properties of interest and their sale prices. Note required deposits, additional fees and completion timescales. Talk to auctioneers about suitable finance options. This reduces surprises on your auction day. Visit open viewings of properties similar to what you seek and chat with agents about demand in the local area. Auctions have their fast-paced rhythms and conventions. Experience reduces the risks of getting caught up in the bidding drama and overpaying on the day. Knowledge gained by studying auctions in advance makes bidding confidently easier.

Securing Finance Before Bidding

Ideally, have finance fully approved before auction day rather than bidding unconditionally. This avoids the huge risks of being unable to complete buying the property. Specialist auction lenders familiarise themselves with listed properties and owners’ guide prices. Submit property details and have your broker press them urgently for a decision. Be aware heavier workloads near auction day slow the process. Understand the in-principle commitment isn’t binding until the contracts are exchanged. But you’ll have greater confidence bidding knowing funds are available subject to valuation. Avoid heartache by only bidding once finance is as secured as possible.

Using Finance Conditions in Your Favour

Most auction purchases pan out successfully with finance secured between winning the bid and exchanging contracts. Sales can still fall through if lenders value the property below the purchase price you bid. This is why unconditional bidding is risky. Use finance conditions to give yourself a safety net. Make your bid conditional on getting a full structural survey, or subject to finance being approved within 28 days. This allows withdrawing if issues come up with minimal losses. If another buyer outbids you unconditionally, see if you can negotiate similar conditions privately with the seller afterwards before finance checking. deployed judiciously, conditions limit risks while still giving you a chance to secure the property.

Conclusion

Buying at auction steps up the game needing serious financing. Success comes from matching funding through savings, joint borrowing, mortgages or alternative routes. Seek specialist brokers to unlock products suiting investment properties. Prepare paperwork meticulously evidencing income, debts and credit score to prove reliability to lenders. Valuation and renovation plans should demonstrate the property’s potential and capabilities. Attend auctions first to understand the process before bidding yourself. Conditional bidding allows finance checks to protect your deposit if lenders decline the property. Follow these steps and you can bid with confidence, unlocking the door to your ideal auction home.