Buying at auction is a completely different experience compared to purchasing a property through a more traditional method. Going through an agent is a lengthy process involving several viewings and negotiations, followed by an approval timeframe for financing before the contract can finally be signed.
Buying at auction starts with the catalogue. After reading the publication there is time to view, study the legal pack and possibly complete a house survey. Auction property is then sold immediately on the sale day. When the hammer goes down, the buyer is fully committed to the purchase and has to usually pay around a 10% deposit of the purchase price immediately, with the balance due within 28 days. The deposit amount and timeframe for payment may vary from these.
As it can be difficult to procure a mortgage in such a timeframe, particularly if the property is uninhabitable, many investors turn to short-term auction finance options to enable them to buy quickly.
We understand borrower profile and assets and as such, have the flexibility in our approach to apply more weight to one or the other when appropriate. This becomes particularly useful in the slightly more abstract requests, enabling us to offer unsecured lending or 100% funding against an asset (if supported by a strong sponsor).
Our average loan size is slightly higher than £1,000,000 and we are most active in the £1,000,000 – £5,000,000 space. We are able to offer loans from as little as £200,000 and well in excess of £20,000,000 if the appropriate opportunities arise.
When purchasing auction property, investors initially may seek short-term finance as traditional mortgages can take time to be approved. Sometimes it may not be possible to get a definitive answer in time for the sale. However, it may be possible to get a mortgage in principle with your chosen lender, which can provide enough time to secure the funds before the balance is due. Be aware that this may not be assured, so investors need to keep their options open and consider alternative methods of funding. The most common alternative is a bridging loan.
Bridging loans for auction purchases are short term funding options that help bridge the gap while long term funding is secured. Applications are often approved in just a few days. The loan period is generally 6-12 months, although it can be repaid at any time within the set term with no early repayment fees at Novellus (save for the notice period to repay).
When seeking a loan for auction property investors can consider either a bridging loan or an auction mortgage as methods to finance it. A bridging loan is a short-term funding option, whereas a mortgage is a form of long-term finance. Securing a mortgage takes several months and it may not be possible to have the money in the bank ready for the short time frame of an auction purchase. Catalogues are published 2-4 weeks prior to the sale, with the full amount due to be paid on any successful bids 28 days after the auction. This allows 6-8 weeks to make sure funding is in place.
Lenders will agree to a mortgage in principle prior to auction but it still relies on the paperwork being completed before the 28-day deadline.
Bridging loans generally take 1-2 weeks to process from the application being made, ensuring that finance is available quickly. This means funds would be available to make the 28-day deadline on an auction purchase.
Advantages of bridging loans used for auction
The main advantage of a bridging loan is the quick application process, which ensures the funding necessary to buy a property at auction is available within the required timeframe. However, there are several other advantages, which include the following:
There are a few things to consider carefully before making the decision to take out a bridging loan for an auction purchase:
The quick turnaround required for auction purchases means it can be challenging to secure funding to purchase an auction property within the timescales. The auction loan from Novellus fills this gap with its quick completion time for loans, from application to approval. A swift decision is guaranteed on all applications, ensuring the funds are in the bank immediately after the approval and legal process has completed.
Borrowers deal directly with a principal which ensures the application process is a swift one. Anyone in need of fast finance can apply as every application is considered individually.
To help discover the approximate costs involved with bridging finance use the online bridging loan calculator for guidance.
Novellus offers a stress-free application process.. The best way to find out if you qualify is to simply call today on 0203 397 4871 or fill out our form below.