Getting the finance right first time when you go to auction is essential. With strict time frames to meet and exit strategies to plan, there are several mistakes to avoid to ensure a successful process.
Buying property at auction can be a great way to expand your portfolio, but it’s not without challenges. With tight timelines and complex financing, it can be difficult to navigate. In this blog, we’ll explore five common auction finance mistakes that could cost you the deal and how working with a specialist broker can help you avoid them.
1. Underestimating the Timeline
Auction purchases move fast, so once the hammer falls, you typically have around 28 days to complete the transaction. That’s not a lot of time to arrange finance, so it’s best to be prepared.
The risk: Delays in funding can lead to missed deadlines and potentially losing the deposit you put down on the property. In short, missing the strict deadlines could cost you the purchase.
How we can help: If you plan to bid at auction, you must speak to a broker first. We can secure you a Decision in Principle (DIP) before the auction, so you’re ready to process your bridging finance or mortgage application as soon as you’ve won your bid!
2. Not Reading the Legal Pack Thoroughly
The legal pack contains crucial information about the property, such as:
- Any title issues on the property
- Restrictive covenants
- Lease terms
Overlooking these details can lead to unwanted surprises, which could deter mortgage lenders and affect your ability to get finance.
The risk: Lenders may refuse to finance properties with legal complications, making meeting the quick bridging timelines more difficult.
How we can help: We always advise that you speak to a legal professional before you bid, so they can review the auction pack first and highlight any concerns that could impact your mortgage application.
3. Misjudging the True Cost of Bridging Finance
Bridging loans are fast and flexible, but they come with costs that can catch buyers off guard, such as:
- Arrangement fees
- Valuation costs
- Legal fees
- Exit fees
It’s not just about the interest rate; the total cost of borrowing can add up quickly.
The risk: Underestimating the full cost of bridging finance can strain your budget and potentially leave you in a position where it’s not a realistic investment.
How we can help: We’ll break down all the costs involved upfront, giving you a clear picture of what to expect. That way, you can budget accurately and avoid any last-minute surprises.
4. Overlooking Exit Strategy Planning
With all types of short-term finance, lenders want to see a clear exit plan in place. This can include refinancing onto a buy to let mortgage, and letting out the property, or ‘flipping’ it, with a quick refurbishment and selling off.
The risk: Lenders want to know how you plan to exit short-term finance, and without this being clear in your mind, you could struggle to secure the finance or stay on a higher interest rate for longer than necessary.
How we can help: We can help you provide a clear exit strategy for your application. With our expertise in this property finance area, we can guide you on what your lender will want to see and answer any questions they may have in advance. This should speed up your application and give you confidence in your property investment.
5. Going It Alone
Auction finance is a specialist area; navigating it without an expert broker can lead to higher costs and missed opportunities.
The risk: If you don’t speak to a broker first, you could miss out on more competitive deals. What’s more, failing to submit all the necessary documents can lead to delays, which, as we know, may significantly impact the purchase. Furthermore, you may apply to a lender and not meet their specific criteria, which could also lead to the purchase falling through.
How we can help: With our experience and knowledge of this specialist market area, we’re best placed to support you with your auction finance application and find the right mortgage lender that suits your needs. Our whole-of-market access means we can find you short-term finance rates that you otherwise wouldn’t have access to, which could potentially bring your mortgage costs down. We will answer any questions you might have to guide you through the pre- and post-auction finance steps to help you successfully secure the property you’ve bid on.
Getting ready for your auction purchase
Auction purchases can be incredibly rewarding, but you need to be financially prepared. By avoiding these common mistakes and working with a broker who understands the auction landscape, you can bid confidently.
Thinking of buying at auction?
Speak to our experts and get the finance right first time! Call us on 0345 345 6788 or submit an enquiry here.
