A piece of the auction - by Tomer Aboody

Monday, 5 October 2015
Driven by attractive prices and the speed at which a deal can be executed, property auctions are appealing to a wider audience including buy-to-let investors, who are increasingly visiting auction rooms in a bid to find a good deal.   

Property investors can benefit from buying a property at auction below market prices, typically within a 28-day time frame. They can also benefit from contributing smaller deposits of around 10%.

However, an investor wanting to take advantage of these opportunities can often face barriers when it comes to raising funds, with a reduction in lending from high street banks and lengthy application processes on the mortgages they do provide.

These changes have caused auction buyers to rethink their financial arrangements and seek alternative methods of funding, with bridging loans offering a real time solution to the funding gap.  MTF has seen a notable increase in bridging loan applications from investors and developers wanting to buy properties at auction.

One of the main benefits of a bridging loan is the speed at which funds can be delivered. Where a mainstream bank may take several months to put together a loan for a borrower, a bridging finance company is often able to make lending decisions within hours of initial enquiry so funds could be released in less than a day.

MTF recently completed a case for a client who needed £215,000 to complete an auction purchase and make renovations to the property. His mortgage lender couldn’t provide the financing in the timeframe required and so he faced losing his deposit.

We provided a £215,000 bridging loan, at 65% loan-to-value over a 6 month term at 0.99% per month, with no exit fee or early redemption penalty. We managed to provide the loan within 24 hours, saving the client’s deposit. He had the time to renovate the property and increase its value before refinancing out of the bridging loan with a buy-to-let mortgage.

Some bridging finance providers can work with clients to ensure they go into an auction fully prepared and at a competitive advantage to others.  MTF clients look at catalogues to identify target properties, setting themselves a maximum threshold they want to pay. We can review their loan options at an early stage, prior to auction and provide them with indicative terms. This way they can go and bid with confidence, knowing they have the adequate finances in place so that a transaction can complete with minimum fuss.

With record low interest rates, rising rents and continuous house price increases, buying an investment property at auction is an attractive proposition.