27th February 2024
Development Finance for First Time Developers
READ MORE
Auction Property Loans
If you are buying property at auction, our team of award winning brokers would be pleased to assist. At Mortgage Lane, many of our advisors are property investors themselves, so we really understand the value and speed in the products we recommend. Whether you are an experienced portfolio landlord or first time buyer with a low credit, we are well versed with your situation.
PROCESS BREAKDOWN
1
Information gathering and advice
The first process in your auction loan application will be gathering or updating information in relation to the property, tenants, or yourself. Once this has been established your expert auction loan broker will make a product recommendation.
2
Credit approval
Once you are satisfied with the product recommended and have confirmed to proceed, this will usually be submitted the same day to give you a decision, until this point there is still nothing to pay! As long as the Agreement in Principle (AIP) was approved, we can move to application stage where fees become payable.
3
Application, valuation & underwrite
Once the application is submitted, your valuation will be booked in and most of the time (depending on the lender). This will usually completed once your initial underwriting has been completed. Once the valuation is returned, if acceptable, the lender would then look to make a formal offer. You can then move to legal stage.
4
Offer and completion
Once you have had your auction loan offer, you will require adequate legal advice and then once you’re happy, your solicitor can draw this down once the legal requirements are satisfied. Your broker at Mortgage Lane will always be checking in on the application post offer, so we are chasing for you too!
Types of Auction Loans
We assist both business owners and investors with auction loans. Below we explain all the types of variations you might come across as well as information on different ownership types and how this can impact your mortgage options.
Bridging loans for auction properties
Bridging loans are the most common form of finance used for an auction purchase. Due to the speed and reduced complexity at legals, some bridging loans can complete after just 4 days.
Local searches if required can take more than six weeks to obtain, therefore using a bridging lender that does not require searches can make way for a speedy application.
Mortgages for auction properties
While mortgages can often be more cost-effective compared to bridging finance, they typically involve more complex underwriting and a slower processing speed. If you’re purchasing a property at a modern auction, which usually provides a 56-day completion window, and your case is straightforward, opting for a mortgage could be a viable choice.
However, for purchases at traditional auctions, where the completion period is just 28 days, relying on a mortgage could pose a risk. The typical timelines for mortgage lender approvals and the additional time required for legal searches might extend beyond the auction’s strict deadline. In such scenarios, bridging finance, known for its quicker turnaround, might be a more suitable and safer option to ensure you meet the auction’s completion schedule.
This revision provides clear advice on when to consider mortgages versus bridging finance for auction purchases, emphasising the importance of aligning with the auction’s time constraints.
Refurbishment loans for auction properties
Refurbishment loans are specialised financial products designed to cover the costs of both purchasing and renovating a property. They accommodate a wide spectrum of refurbishment needs, from minor updates to major renovations. While some lenders might require borrowers to demonstrate previous refurbishment experience for larger projects, others offer more flexibility.
In terms of financial specifics, these loans vary: some provide a Loan to Value (LTV) ratio of up to 85%, encompassing refurbishment costs, while others offer 75% financing for the purchase price and an additional 100% for renovation expenses.
Clients should be aware that refurbishment loans involve detailed underwriting for the renovation aspect, which can impact the processing speed of the application. This factor often leads our auction clients to prefer bridging finance, particularly for traditional auctions with a 28-day completion timeline. In contrast, modern auctions, offering a 56-day completion period, may accommodate refurbishment loans more feasibly.
Typically, the terms for auction loans that include refurbishment range from 12 to 36 months. Although these loans are a necessary cost in property refurbishment ventures, many of our clients aim to exit these loans promptly to maximise their profits.
Experts in Auction Property Loans
At Mortgage Lane we are specialists in Auction Loans, assisting experienced property investors and those first time buyers in financing their auction purchases with quick short term auction loans. Our bridging loan lenders are step up to maintain a great speed of application and complexity of transaction, unlike mortgages underwriting is less thorough sand is usually concluded sooner, therefore they are an appropriate avenue for those investors looking to move fast.Specialist scenarios:
- Non indemnity policy at legals
- Title restrictions
- Houses of multiple occupation (HMO)
- Multi unit freehold blocks (MUFB)
- Developments
- Holiday lets
- Guest houses
- Land
- Pubs
- Carehomes
INTRODUCTION TITLE TO VIDEO
TRY OUR AUCTION PROPERTY CALCULATOR
ANSWERS TO COMMON QUESTIONS AND QUERIES ABOUT AUCTION PROPERTY LOANS
What is the minimum loan size required for an auction loan?
In the realm of auction loans, it’s notable that there is typically no set minimum loan size universally applicable. However, the criteria for an auction loan can vary considerably among different lenders. Many top-tier lenders in the auction loan market often have a starting point for loan sizes at £50,000 or above.
Diverse Criteria in Auction Loan Offerings:
Variability Among Lenders for Auction Loans: The auction loan sector is characterised by a range of lender-specific terms, including differences in minimum loan sizes. This reflects the varied approaches and risk assessments employed by lenders in the auction loan industry.
Market Standards in Auction Loan Amounts: Prominent lenders in the auction loan arena generally set a baseline for loan sizes, commonly beginning at around £50,000. This threshold is part of their strategic lending criteria.
Mortgage Lane’s Role in Facilitating Auction Loans:
Expertise in Auction Loan Requirements: As specialists in auction loans, Mortgage Lane offers invaluable guidance on navigating the diverse lender requirements, including minimum loan sizes.
Customised Auction Loan Solutions: We are committed to connecting borrowers with auction loan options that best fit their financial situation and investment strategy, considering the varying minimum loan sizes in the market.
Conclusion:
While there is no standard minimum loan size for an auction loan across all lenders, understanding the different thresholds set by various lenders is key. Mortgage Lane is equipped to assist borrowers in exploring these options, ensuring they find an auction loan that aligns with their specific needs and property investment objectives.
How is interest paid on an Auction loan?
Serviced Interest
Definition: In a serviced interest arrangement, the borrower pays the interest monthly, similar to a standard mortgage.
Advantages: This option can be beneficial if the borrower has a regular income stream and prefers to manage their cash flow by paying interest as they go. It helps in maintaining the principal amount of the loan, as the borrower is actively paying off the interest.
Considerations: Borrowers need to ensure they have the necessary cash flow to make these monthly interest payments. It’s essential to plan for these expenses to avoid financial strain.
Deducted (Retained) Interest:
Definition: In deducted or retained interest loans, the interest for the loan term is calculated upfront and deducted from the initial loan amount provided to the borrower.
Advantages: This approach is useful for borrowers who may not have a regular income stream during the term of the bridging loan, such as property developers awaiting sale or refinancing of a project. It eliminates the need for monthly interest payments, as the interest is already accounted for.
Considerations: Since the interest is deducted at the beginning, the initial cash received by the borrower is less than the total loan amount. Borrowers should plan accordingly, as they will have less capital available upfront for their project or investment.
Both options have their specific uses depending on the borrower’s financial situation, cash flow, and strategy for the loan. It’s crucial for borrowers to understand these differences and choose the option that best aligns with their financial plan and the intended use of the auction loan.
Can I lend money towards the works too?
Yes
Refurbishment loans are designed to finance both the purchase and the renovation of a property. These loans cater to a range of refurbishments, from light to heavy. For more extensive projects, some lenders may require the borrower to have prior refurbishment experience, while others may be more flexible regarding this requirement.
There are various products available in this category. Some offer a higher Loan to Value (LTV) ratio, up to 85%, which includes the refurbishment costs. Others might provide a loan covering 75% of the property’s purchase price, with an additional 100% financing for the renovation expenses.
However, it’s important to note that while these financing options can be attractive for profitable projects, they may not always be suitable. Refurbishment loans carry an extra piece of underwriting in relation to the refurb that can reduce the speed of an application. Therefore, our auction clients tend to opt for bridging finance in the first instance unless of course buying at modern action where you may have 56 days to complete rather than the standard 28.
Auction loans offering refurbishment have terms that usually span from 12-36 months. Of course, they are a cost of doing business when you are refurbishing a property, but with profit involved many applicants seek to exit these products in good time.
What is a closed legal panel?
Specialist lenders offering Auction loans often will have a closed legal panel, meaning that they will dictate which lenders can act for them. You would select from a list of solicitors who will act for the lender and potentially you also. Joint representation is sometimes offered where the chosen solicitor’s firm can also act for you. Some lenders closed panel will be just sole representation for the lender and you will then be able to use your chosen solicitor additionally subject to eligibility. It is key to know that with sole representation, there are two legal fees to pay.
Do I need a minimum income for an Auction Loan?
No.
Although if your proposed exit from the auction loan will be remortgage, the lender will want to be comfortable you have enough income to exit onto a mortgage lender.
What entities can take out an Auction Loan
We arrange cost-effective Auction loans for:
- Individuals
- Special Purchase Vehicles/Limited Companies
- Limited Liability Partnerships (LLP)
- Trading companies
- Charities
- On/Offshore Trusts
How do you repay interest on an Auction Loan?
With an Auction Loan being short term, unlike a mortgage, your auction lender will charge interest monthly rather than annually.
If you are eligible you may be able to repay the interest monthly. But if not, your interest may be deducted from the day one loan.
When the interest is deducted from the loan, if you exit the auction loan early then you will get a refund for unused interest.
Do I need experience required for an Auction?
Although some lenders will be more comfortable with experience, most Auction Lenders would not require you to have any level of experience when arranging a bridging loan. The experience required at underwriting by the bridging lender, will be the experience you will need to get a development loan in order to exit the Auction Loan or experience required to remortgage.
How are auction loans regulated?
It is important to note that Auction loans are not covered by the Financial Services Compensation Scheme, unless they intend to reside in the property, so auction loan investment borrowers should ensure they are dealing with a reputable lender.
What is the minimum property value required for an auction loan?
When it comes to acquiring an auction loan, it’s important to note that there is generally no definitive minimum property value set across the board. However, this can vary significantly from lender to lender within the auction loan market. Many leading lenders in the field of auction loans typically establish a minimum property value of £75,000 or more.
Understanding Auction Loan Requirements Across Different Lenders:
Lender Variability in Auction Loan Terms: The auction loan sector sees a diverse range of criteria among lenders, with some setting specific minimum property values for considering an auction loan application.
Market Trends in Auction Loan Offerings: Predominant lenders in the auction loan market often set a baseline property value, commonly around £75,000, as part of their risk management and loan viability assessments.
Expertise of Mortgage Lane in Navigating Auction Loan Options:
Specialised Guidance in Auction Loans: As experts in the auction loan landscape, Mortgage Lane is adept at advising clients on various lender requirements, including minimum property values.
Tailored Auction Loan Solutions: We specialise in connecting borrowers with the most suitable auction loan options, considering their specific needs and the property’s value.
Conclusion:
While there’s no universal minimum property value for an auction loan, understanding the varying thresholds set by different lenders is crucial. With Mortgage Lane’s expertise, borrowers can effectively navigate these variances to secure an auction loan that aligns with their financial goals and property investment plans.
Will I need local searches to complete on an Auction loan?
For auction property purchases, the typical need for local searches, which can range from 2 to 18 weeks depending on the local council, is often circumvented by most auction lenders. They usually accept an indemnity policy as an alternative. This approach significantly expedites the transaction process. An indemnity policy serves as a form of insurance against any potential issues that would normally be identified in local searches, such as planning permission violations or local authority notices.
Key Point: For those looking to complete auction transactions more swiftly, it is advisable to engage with lenders who offer the option of proceeding with an indemnity policy in lieu of waiting for local searches. This not only accelerates the process but also ensures a smoother and more efficient transaction.
Further Advice: Borrowers should consult with their legal advisors to understand the implications of using an indemnity policy and to ensure that it aligns with their specific needs and circumstances related to the auction property purchase.
What is an Auction loan?
An Auction loan is designed to complete before the final date of completion, set by the auction. In most cases auctions have a 28 completion timescale where you will have to complete by. Failure to do this can result in loosing your deposit and potentially further costs. In other cases, you may have 56 days to complete at a Modern Auction. Depending on the complexity of your application, your broker at Mortgage Lane may recommend a mortgage but if not the more common option would be a bridging loan.
A bridging loan is a form of short term finance with terms ranging from 3-36 months which are designed exit within that time frame. The exit will usually be the sale of the security, remortgage or in some cases re-bridging.
An auction loan is expected to lend against properties that are not mortgageable, inhabitable and in some other instances used as a vehicle to gain experience for mortgage eligibility
How do I get an Auction Loan with bad credit?
Just like mortgages, there are auction loan lenders that allow for applicants with adverse credit. So whether you have missed payments, CCJs, defaults or even an IVA, we can still source you with a suitable auction loan lender. If you have discharged from bankruptcy then your options will become better after 3 years and also subsequently 6 years.
Your refurbishment loan lender may enquire about your remortgage options for applicants with adverse credit.
Can First time buyers get an Auction Loan?
Yes, bridging lenders do not require you to be a homeowner.
Often a bridging loan can be a way around Loan to Value (LTV) restrictions imposed against applicants on buy to let mortgages, who are first time buyers.
Applicants using an auction loan first, may need to remortgage, but they will then not be a first time buyer and the restrictions then lift.
Is a bridging loan used to buy at auction?
Yes. Many of our clients use Bridging Loans to purchase properties from auction. It is good to instruct your broker immediately so you can establish which solicitor you may be dealing with. It is important to note that most short term lenders offering Auction Loans will have a closed legal panel and therefore your chosen solicitor may not be able to act.
Where do you broker Auction Loans in the UK?
We assist our clients with Auction loans in England, Wales, Scotland, and Northen Ireland.
Can you apply for an Auction Loan before the Auction?
Yes.
In fact, as long as you are happy to risk the application fees it can be a great idea to speed up your application and buy yourself time before you are up against the clock! However, if you do not win the property, this can mean wasting fees on broker fees, valuation fees and sometimes legal costs.
How long does an auction loan take to complete?
To date we have arranged an Auction loan from start to finish in just 4 days.
Circumstances would be the key driver for a fast completion with a Auction Loan, by this we mean strength of exit.
Sale – profitability of the deal and demand for sale, checked by the valuer.
Remortgage – underwriting will become more enhanced for this exit type, such as credit status, income, experience, stress testing and asset and liability review.
For a case to have speed of application it must have a clear exit, this is the first part.
The next part which can determine the time taken to arrange a Auction Loan would be the legals. This is very important and if you are looking to complete on a bridging loan quickly, you will need your broker to take you to a lender that will not require searches.
If a lender does not require legal searches and they are happy to accept an indemnity policy, then it can really speed up the time it takes to arrange an auction loan.
Legal searches might take 6 weeks with some councils, so if you are buying at auction with just 28 days to complete, it might not be suitable to use a lender that insists on searches.
Read More on AUCTION LOANS
At Mortgage Lane, we see the most complex of auction loan applications, some of which make a good read for investors looking to learn from other applicants challenges, or for those effected by the topics! See more refurbishment loan topics covered in our blog here.
BEGIN YOUR AUCTION LOAN JOURNEY WITH US TODAY
Let us know about your enquiry and one of the team at Mortgage Lane will be in contact to assist!