When to use auction finance by Tomer Aboody

Wednesday, 22 February 2017
Driven by attractive prices and the speed at which a deal can be completed, 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.

The UK housing market usually shows signs of cooling as it enters the traditionally calm period in the run-up to Christmas, yet the property auction market in the UK finished 2016 strongly and set new records in the process, fresh figures provided by the Essential Information Group (EIG) show.

Overall the volume of lots offered in December was up over 12%, from 3,336 to 3,745, whilst lots sold increased by 9%, from 2,591 to 2,830. This is the largest ever number of lots offered and sold during the month of December, beating the previous highs of 3,529 lots offered in December 2007.

Landlords 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. Either they are unable to get a mortgage because the property requires major work, or it is virtually impossible to secure a mortgage in the tight 28-day time frame.

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

One of the main benefits of an auction finance 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, an auction finance company is often able to make lending decisions within hours of the initial enquiry, so funds could be released in less than a week.

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

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

Some auction finance providers can work with clients to ensure they go into an auction fully prepared and at a competitive advantage. 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 adequate finances in place so that a transaction can complete with minimum fuss.

MTF is a leading bridging finance lender specialising in short term loans including auction finance, bridging loans, both first and second charge loans and are recognised throughout the industry for its speed and service.

Established in 2008, the company has won multiple awards including Best Service from a Bridging Finance Provider at the Business Moneyfacts Awards 2014, Best Bridging Finance Company at the Financial Reporter Awards 2013 and Best Service from a Bridging Lender at The Bridging and Commercial Awards 2013.