Scott Hendry, Director of auction finance at Together said:
What issues do you regularly come across when arranging a loan for an auction property?
“The most common issue that clients experience when buying at auction is securing the finance they require in the tight timescales, which can be on average 28 days to complete, sometimes even less. A buyer may agree an amount with their mainstream bank, but then find once they have won the bid on a property, that the bank can’t process the finance or mortgage in time to meet the seller’s deadlines. This is where our short-term auction finance offering can help, as we can usually act much faster and turn around funding against extremely tight deadlines, so brokers need to be aware of where to direct customers in this situation.
“The condition of the property can also sometimes pose an issue for traditional lenders. If the property has no kitchen or bathroom, deeming it uninhabitable, then buyers may not be able to borrow from a high street bank. Therefore, we have clients come to us in the short-term to purchase the property, then once it is renovated and had the necessary refurbishments made, they refinance with a mainstream provider.
“Buyers also need to be aware of guide prices. Those looking at property at auctions can get an agreement in principle so they are aware beforehand how much they can borrow. However, properties will often sell at more than the guide price, and if the price significantly exceeds your agreement in principle, you would need to reapply. Fortunately, this is why specialist auction finance providers like Together are present in the larger auction houses, and can offer on-the-spot decisions in some cases, so that finance agreements can be discussed quickly and buyers can continue to move through the fast-paced auction process.”
How can these issues be avoided?
“To avoid being caught out by the tight timescales, auction buyers need to be prepared and should talk to auction finance specialists, so that they go into the auction room with a decision in principle on a particular lot and can bid with confidence up to the agreed bid price. There are also an increasing number of brokers working with auction finance providers like ourselves who can advise their clients on where they will be likely to get funding.
“Buying houses at auction that need refurbishing is popular, but many mainstream lenders may not be prepared to offer finance if the property is in a state of disrepair. Auction finance is designed for these situations – at Together, for example, we’ll adopt our usual common sense approach and look at the bigger picture, so we’ll consider all types of property, including those where the intention is to renovate or repair. Typically, we find the customer will then refinance with a mainstream bank, once the renovation is complete.
“In order to avoid overspending at auction, buyers that have an agreement in principle need to stick to their budget and remember that the guide price is just an indication; it could go for significantly more, so it’s important not to exceed your limit as once that hammer goes down, there is a legal obligation to complete the purchase, and a 10% deposit to pay on the day.”