Fox Davidson specialise in securing auction finance where funds are needed within a 28 day completion deadline.
Properties at auction have a few characteristics that make them different to standard mortgage. Often the property is not able to be mortgaged by the high street. You will need to exchange on acceptance of your bid and complete soon after, usually within 28 days. Auction finance is a specific mortgage product designed to meet those needs.
How does an auction work?
- An auction house release their brochure for an upcoming auction and separate each item into lots.
- You bid against other people to win a lot
- You commit to buy on the acceptance of your winning bid.
- It is essential that you have the funds in place on acceptance of your bid.
- Completion is usually set at 28 days from the date of the auction.
Which type of lender will lend on a property in an auction?
Traditional lenders such as high street banks and building societies struggle with auction finance as;
- They need to carry out a survey on the property. You don’t want to be paying for a property valuation before you know if you have secured the property at auction. Gaining access may sometimes also be an issue.
- High street lenders can’t guarantee a mortgage offer and legal completion within the 28-day deadline. Most lenders take that amount of time to issue the mortgage offer.
- Property at auction is usually not fit for lending. Auction properties usually need renovating to a habitable standard to make them suitable for the high street lenders to lend.
Specialist mortgages for auctions meet the needs of buying a property at auction because they addresses all of the above points.
Key points of mortgages for auction property:
- Some lenders issue an offer of finance without the need for a valuation
- Initial offers can be produced within 48 hours and funds can be drawn down within the 28-day deadline
- The finance is priced according to the amount of refurbishment the property requires
If you intend to purchase and renovate a property then lenders will need to take into consideration; your experience of property refurbishment, the build costs, who will carry out the work and how you intend to repay the loan. Property refurbishment falls into two categories and they are light refurbishment and heavy refurbishment.
Light refurbishment includes new bathrooms and kitchens and heavy refurbishment includes structural changes or where the refurbishment to the property will result in planning changes or change of use, perhaps from a C3 residential use to C4 HMO use. You can find out more on our property development finance page.
If you intend to retain the property, then Fox Davidson can also arrange the exit finance. The exit finance will be cheaper than the original auction finance and can be at loan to values of up to 80% of the gross development finance or in the case of a main residence property, up to 95% of the gross development (post works) value.
Depending on how long it has taken you to complete the refurbishment works to the property you may fall foul of the 6 month mortgage rule, you can read more about that here in our blog.
Auction finance terms
Auction property finance can be secured on residential, buy to let and commercial property. The loan to value will vary from 50% to around 75% depending on the property value and the degree of work needed to be carried out on the property (if any).
Interest rates used to be a standard 1.5 – 2% pm but with an influx of challenger banks and privately funded lenders coming to the market over the last 5 years there are now much more favourable terms and they are constantly changing. You can expect to pay around 0.45% – 1.2%pm with set up fees from 0% to 2%.
Interest can be rolled up into the loan or serviced monthly.
Speak to Fox Davidson, a specialist mortgage broker of mortgages for auctions.