Property Auctions – Financing Auction Purchases & The Growth of Auctions

A property auction is a public event where real estate properties are sold to the highest bidder. Simple yes? In essence, it is the simplest form of buying a property. The downside is that you sometimes need to make a quick decision. You also need to complete within weeks of the auction finishing. In simple […]

October 7th, 2024

A property auction is a public event where real estate properties are sold to the highest bidder. Simple yes?

In essence, it is the simplest form of buying a property. The downside is that you sometimes need to make a quick decision. You also need to complete within weeks of the auction finishing. In simple terms, when the hammer comes down you have exchanged contracts.

A recent survey* showed that of all the properties that went to auction in 2023:

– 82% were sold

– Of those that were sold, they sold for an average of 87.5% of the open market value

– There was an increase of 22.1% in the number of properties offered at auction

There could be many reasons behind these figures. Lenders might be recovering their assets. A more aggressive HMRC could be involved. It could also be that completion and sale proceeds were needed quicker. What the results also tell us is that with the average sale price being 12.5% below open market values, there is some opportunity there for property developers and property investors.

Why Doesn’t Everyone Buy at Auction?

In simple terms, it suits who it suits. An auction is also no place for an unprepared buyer.

Auctioneers will provide access to a full legal pack prior to the auction. You may have the opportunity to see the property beforehand. This means you can have more detail about the property far earlier than is the case with a traditional sale.

It is that period before an auction that is key to financing any purchase made.

Financing Auction Properties

You normally have a few weeks to complete your purchase. This means moving quickly. You need a lender who can move at your speed. There are loads of auction finance lenders out there, for tips on how to get that finance in place, here are my top three tips:

Research the properties you want to buy, get the legal pack and decide what your top end budget is. The more the lender knows about the property the less that can go awry during the finance process
Provide the lot number and ensure the lender understands what your plan for the property is. You will need to repay the auction finance and it helps the lender to know how this will happen (flip and sale, refurb and remortgage etc)
Get finance agreed based on the lot number, meaning you have funding in place at the outset and can ‘press the button’ once the hammer comes down

Please don’t seek finance after an auction, we do see these requests and it is never a smooth road.

If you are thinking of buying property at auction, bear the above in mind. Contact us about getting your finance in place before the auction. We’re here to help.

By Dave Farmer

*Lendinvest survey September 2024

David Farmer

Over 30 years finance experience. Former credit underwriter, founder of Lime Finance Solutions in 2012. Multi Award winning business, featured in Sunday Telegraph, Parliamentary Review, Sky TV and others. Regular contributor to press and business associations. FCA Authorised, ALIBF Qualified. Specialist in Commercial Mortgages, Business Lending, Property and Development Finance.