Homebuyers who are caught in a race to buy their dream property, for example, are increasingly turning to bridging finance as a quick way of providing the funds to secure a purchase before they are able to complete on a term loan, or while they wait to sell their existing property.
In this heated environment, with properties on the open market often going at above asking price, buying property at auction can prove lucrative for landlords who have the experience and confidence to buy in a way that many purchasers are not comfortable, and a number of lenders offer specialist solutions for auction finance. So, what do you need to know to best serve your clients?
Tight timescales and renovation and refurbishment key considerations
A major consideration when it comes to the purchase of a property at auction is the tight timescales within which a client would be required to complete.
Under typical auction conditions if a client’s bid on a property is successful, they would be required to pay a non-refundable 10 per cent deposit on the day and would usually have a further 28 days to complete the purchase.
These timeframes can pose problems for traditional mortgage lenders, so it’s vitally important for a buyer to partner with a specialist in auction finance if they are to be successful in purchasing at these events.
The funding for the purchase of a property at auction can be structured in numerous ways, each one dependent on a buyer’s circumstances, situation and financial requirements.
As a specialist adviser, we can look at tailoring a funding solution to the individual client’s needs.
This could include utilising a client’s other property assets as additional loan security, often meaning that a borrower’s personal or business cash contribution to the purchase price is reduced to just the 10 per cent deposit paid on the day of auction and the subsequent valuation and legal fees associated with the purchase.
It’s also not uncommon for properties sold at auction to require an element of renovation and refurbishment.
This might include modernisation, the fitting of a new kitchen or bathroom perhaps or in some circumstances, a complete redevelopment of the property. So, it’s important to understand your client’s intentions from the outset so their requirements are matched with a lender that can deliver the required light or heavy refurbishment loan facility, within the restrictive timescales of an auction.
Exit strategy is ‘key’
And finally, when it comes to bridging finance, exit strategy is key. This would usually be via a refinance onto a longer-term product, or the sale of the property, or a possible combination of both if additional securities have been offered as part of the loan structure.
So, it’s important to discuss these plans ahead of any potential auction purchase. If you have any questions or require guidance along the way, you could consider speaking a specialist distributor with expertise in bridging finance and access to long-standing relationships with lenders to ensure that you deliver the best results for your clients.
