Auction finance: Explained
Auction finance is a specialised lending option designed for the fast-paced environment of property auctions. It’s a form of bridging loan that enables investors to secure funding quickly, often within the tight deadlines that auction purchases require. With bridging loans, in certain situations where the purchase price is lower than value of the property or if you can offer additional security it may be possible to borrow up to 100% of the purchase price with a Below Market Value Bridging Loan.
Understanding auction finance
Auction finance is tailored to meet the demands of auction purchases, where buyers typically have 28 days from the auction date to complete the transaction. This type of finance is particularly useful for those who need to act swiftly but may not have immediate access to traditional forms of finance due to time constraints or the nature of the property being purchased.
The benefits of auction finance
One of the key advantages of auction finance is its speed. Lenders who specialise in this area are accustomed to working within the urgent timeframes of auctions. They can often provide a decision in principle quickly, which gives buyers the confidence to bid on properties knowing they have the funds available.
Another benefit is the flexibility it offers. Auction finance can be used for a variety of property types, including residential, commercial, and land. It’s also accessible to a wide range of buyers, from individuals to limited companies, and can accommodate different credit statuses and income types.
How auction finance works
The process typically begins before the auction takes place. Prospective buyers can approach lenders to get an agreement in principle, which outlines how much they can borrow and under what terms. This pre-approval is based on the buyer’s financial situation and the property they intend to purchase.
Once the buyer wins a property at auction, they usually pay a deposit of around 10% of the purchase price on the day. The auction finance then covers the remaining balance, allowing the buyer to complete the purchase within the required timeframe.
Repaying auction finance
Repayment terms for auction finance are generally flexible. Buyers can choose to sell the property after improvements are made, or they can refinance with a longer-term mortgage solution. The repayment period can vary, but it’s typically up to 12 months, giving buyers ample time to arrange their exit strategy.
Conclusion
Auction finance is a powerful tool for property investors, offering the speed and flexibility needed to capitalise on opportunities at auction. With the right lender, buyers can navigate the auction process with confidence, secure in the knowledge that their financing is in place.
Before you begin the application process
Consult with an expert broker: At Evolve Finance we understand how auction finance works and can guide you through the intricacies of the process, helping you explore all available options.