Property auction houses are an excellent market for properties below the usual market value. Anyone with an interest in property can benefit from them, be they a property developer or simply someone looking for a more affordable home. With enough experience, auction houses may even become a staple tool for the budding property developer, provided they have the wherewithal to return a fading property to its former glory. With such competitive prices, properties at auction houses can be significantly advantageous, to homebuyers and resellers alike.

But, though the prices certainly are lower than the housing market, purchasing a property is never exactly cheap. Scarce few have the cash required for a property close at hand, even ones for sale at a property auction. This poses the question: How can you raise enough capital in order to benefit from the lower house prices at auction houses?

This is where auction finance comes in. Properties at auction houses sell quickly, with payment being required soon after the deal is made, else it falls through. You need a swift method of capital generation. One that can navigate the high-pressure environment and needs of an auction house. Auction finance is one such method.

What is auction finance?

Auction finance is exactly what it sounds like – a form of finance specifically intended for auction buyers, provided by lenders with a specialty in the field of auctions. As auction finance exists to meet the needs of the very demanding auction house environment, loans of this nature tend to be available quickly, flexible regarding the properties you intend to purchase, and allow for a large amount of capital to be borrowed. Because of this, they are usually a type of secured loan, wherein you must put up physical assets of your own as security in case you can’t pay back your debt. While this carries additional risk compared to other types of loans, it has the added benefit of not being as focused on your credit score. Making it viable for people with a poor credit history.

How does auction finance work?

At an auction house, buyers are expected to pay for what they won in short order. As properties are expensive, often well into the six figures, having enough cash readily available to pay even a deposit can be a challenge.

Because of the unique functions of an auction house, namely the speed with which a large amount of capital must be raised, loans must be quick and flexible. Many loans require thorough checks, with a series of documentation being necessary for a successful application. This makes most of the usual types of loans simply too lengthy, or too flexible, for use at an auction house.

Instead, auction finance largely does away with much of the usual process. Placing more emphasis on what you intend to purchase and what you will offer as security. This doesn’t mean you are necessarily more likely to successfully apply for auction finance when compared to other types of loan. But, it does mean your application will be processed quickly, with the money reaching you before the auction house loses patience. Let’s have a more in-depth look at how the process works.

Applying for auction finance

As with any application, you’ll need to start with some research. This is both because you need to ensure your investment is sound for your own benefit, and to convince a lender that your investment won’t crumble after a light breeze. Once you have enough information, you can move on to the main process.

Making your application can go somewhat differently depending on your financial history and experience as a property developer. Assuming property development is your reason behind seeking auction finance. Those with little to no experience will likely have a tougher time obtaining a successful application than veterans of the industry. Especially if the intended purchase is a bit far-fetched. When making an application for auction finance, you will likely be asked for a handful of details; credit history checks and an income assessment may be required. Alongside a valuation of the property in question and assets you intend to use as security.

Although auction finance places less emphasis on documentation, they still act as indicators for how much trouble you might cause a lender. This can be important depending on your experience and intended purchase. Your chosen lender will decide whether or not to lend to you. They will notify you of their decision quickly, usually within two days.

Securing Funding

With your funding secured, all that’s left is to win your chosen property at auction. If you didn’t have a specific property in mind, your lender will likely have given you boundaries to stay within. For example, the lender will finance 90% of a house matching certain criteria. You will be responsible for the remaining 10% and the deposit. Provided you stay within these boundaries, you won’t have any issues.

The last stage is to finalise the payment and wrap up the legal paperwork. For this, you will need to pay your deposit and whatever percentage of the property’s cost uncovered by your lender. While they put forward the lion’s share. You will typically have 28 days in which to pay for the property after you won it. Needless to say, keep the celebrations until after the process is complete. This might require some back and forth between legal entities and the seller of the property. Provided you did your due diligence, the process will be soundly wrapped up before long.

Should you use auction finance?

If you are looking to purchase property at an auction house, but lack the available capital to pay the costs outright, auction finance could be a good fit for you. It can be a riskier form of finance. Loans of this type generally fall under the umbrella of secured loans, which need to be secured against assets. However, this risk is significantly mitigated as you build experience with property development. You’ll have an easier time securing loans too.

However, for less experienced property developers, auction finance isn’t always smooth sailing. You will be more susceptible to the risks. Likely be subjected to more stringent checks before lenders agree to lend to you. That said, it is difficult to find a form of finance that suits the auction house better than auction finance. Regardless of your level of experience. Contact the Seek Finance team today to see how we can help!