When it comes to auction finance, several factors help to ensure a successful purchase. Read on for expert advice and top tips on the legal process, lender outlook, and mortgage rate insights.
Auction finance (a form of bridging finance) continues to grow increasingly popular amongst landlords. In the current mortgage market, many property investors look at short-term finance as an opportunity to acquire new properties, refurbish them, and either let them out or sell them for a profit. For many, this is an easy way to diversify property portfolios with high-yielding assets.
However, bridging and auction finance has historically earned itself a poor reputation. It’s often seen as overly expensive and less reputable than standard buy to let finance. Is this still the case in today’s market?
In our recent webinar, ‘How to Purchase Investment Property at Auction,’ experts across the industry shared top tips and insights into purchasing property at auction, as well as advice on how to speed the process up and ensure a stress-free experience. Below, we look at the three key takeaways from our host and special guest speakers, all experts in their fields.
Three Key Takeaways to Auction Finance Success
1. Review the property’s legal pack before the auction date
Contrary to popular belief, you don’t have to go into the bidding completely blind when it comes to the property’s details and the legal process ahead of you. Your solicitor can access the legal pack before the auction date, meaning they can review it first. Typically, your solicitor will ask for five working days to review this.
Similarly, most auctioneers offer viewings of properties on set days before the auction date; however, even a drive-by visit to better understand the property's condition is a great idea. This will give you peace of mind in your property investment decisions, and your solicitor will be able to advise you on any potential challenges you may face in the purchase process.
Luke Humphries, Consultant Conveyancer at Auction Conveyancing, talked in great depth about the importance of working with a solicitor with sufficient experience and a thorough understanding of the auction process and timescales. This will play a crucial role in ensuring your case completes on time and means you can rely on their expertise to guide you through the mortgage application process.
- Read the legal pack and get your solicitor to review it too
- View the property, or at least drive past it to get a better idea of what you’re bidding for
- Use a solicitor with auction experience, and make sure they have capacity to work on such a time-pressure case
2. Bridging rates are becoming increasingly competitive
Bridging rates are typically more expensive than standard buy to let mortgage rates as they are a type of short-term finance. However, Emily Hollands, Group Head of Distribution at OSB Group, noted that over recent years, mortgage rate rises have meant that bridging rates are becoming increasingly competitive, sometimes even as affordable as fixed-rate products.
Bridging is not a long-term finance option, and OSB Group reports the average bridging term for their clients is just four to six months. This means it can be an affordable way of completing the necessary works or property purchase before exiting onto a buy to let mortgage or selling the property on.
Hollands noted that the appetite for bridging finance applications is growing amongst both the high-street banks and more specialist lenders. As more lenders enter this space, pricing options will continue to improve.
- Bridging finance is becoming increasingly cost-effective
- Most borrowers take bridging finance out for 4-6 months
- More lenders are offering bridging finance than ever before
3. Your broker can help arrange your property finance before you bid
Working with an expert mortgage consultant is essential to ensuring you secure the best mortgage deal available to you. Not only can they explore the types of rates available to you and calculate how much bridging finance could cost you, but your broker may be able to access a better deal by approaching lenders you otherwise wouldn’t have access to.
Before bidding at auction, you can secure a Decision in Principle (DIP), which will put you in a stronger position once you're looking to submit your full mortgage application. Furthermore, an experienced broker (like MFB) will advise you on which documents your lender will likely ask to see at the application stage. This way, you’re better prepared to submit all your documents, saving you time and money.
- Use a mortgage broker to calculate the best finance option for you and access exclusive finance options
- Your broker will know what documents you’ll need to meet tight auction purchase deadlines
- Secure a DIP before the auction to speed up finance application post-auction
Watch the webinar back
To listen to all the insights at any time, you can watch our webinar on demand! Simply click here to watch the recording.
For any other bridging or auction finance enquiries, submit an enquiry to MFB here or call us on 0345 345 6788.
Speak to one of our experts
If you have any questions regarding your mortgage application or want some advice, start an online chat with our specialist brokers or call us today on 0345 345 6788.
