It is another term used for short term finance, and a perfect way for property investors/ developers to purchase property below market value in the auction .These  properties are  offered to the auction either by the lenders to recover their debts or by desperate  individual sellers. An auction finance is a desired lending facility for an inexperience person or for a seasoned property investor alike.

A property auction is a sales event where potential purchaser place competitive bids on properties either in open or closed format. It is popular because client and vendor believe buying and selling will be a good and quick deal.

Because of short time frame for buying and completing an auction property finance, long term financing such as mortgages, can be difficult to implement quickly enough to meet deadlines. That is where an auction finance comes handy. It serves the purpose to complete the lending in a shortest possible given timescale.

There are various auction finance rates available to safeguard the purchase immediately.

What can you buy with an auction finance?

You can literally buy any type of property available at the auction. It can be a building or a plot of land to develop. The auction finances can be arranged to buy a residential or a commercial premise.

The buying rule is same where the buyer arranges the initial deposit and the balance is funded by the lender.

How can an auction finance help property developers?

Putting up your hand on property worth hundreds of thousands of pounds is a daunting prospect, even for experience auctioneers. On the off chance that you are making a triumphant offer, you will typically need to pay a nonrefundable deposit usually 10% on the day and will have 28 days to pay the remainder.

That means the time frame  for  completing  the sale is much shorter than conventional methods of purchasing properties, so it can be difficult to bring the funds together in time, even though you have a lot of available equity in your property portfolio.

Auction finance is a versatile product that can be customized to fit individual needs, but the basic premise is that you are going to enter to auction room with an agreement in principle and thus with clear budgets and criteria in mind.

How does auction finance work?

It is similar in some ways to mortgage lending, but quite different.

Some features are mentioned:

• You will need to find a deposit of 10% – 35% of the value of auction property.
• You expect to pay a higher deposit of up to 50% for high risk properties
• Some lenders will allow you to use another property or asset as security.
• It is short term finance typically 1 – 24 months.
• In this finance, lenders will want you to have a clear “exit strategy”, a way to pay off the loan.

Process of auction finance

PLANING AND RESEARCH

The initial step to making sure about closeout financing is to choose what kind of property you might want to include your portfolio, and to locate a specific sale. You can then draw up a shortlist of properties that you are interested in form that specific auction and present the case to the lender.

PROVISIONAL ACCEPTANCE

The next step is going through the temporary approval process for the lender, which may include, for example, credit reviews and property valuations. This should be straight forward operation if you are a seasoned developer.

You might still get auction funding if you are new to property development, but you will have to make sure you plan is not too ambitious. It might be useful way to find out if the ideas are practical or pie-in-the-sky with finance professional.

CHOOSING TARGETS

For the loan specialist’s endorsement condition, you will likewise have a lot of conditions to meet for the property you will contend to purchase at the sale. If you have a good track record of previous investments, the conditions negotiated with lender may be more stringent than that, or more versatile. If you have this agreement in place the scope for possible targets at the auction will start to narrow down.

CHOOSING THE DEAL

When you have gone to the bartering and made a triumphant offer on a suitable property. You as a rule   have a month to pay the remaining balance from the day the initial deposit was paid. With the auction funding in place, of course, the investor pays for this.

Apart from this normal legal procedure if you hit this stage you are funded.

FINALIZING

You cannot afford to put your feet up and wait until you are done. You should keep append with the loan specialist, the property merchant, and your lawyer to ensure things go as they should. On the off chance that everything goes to plan, and you have accomplished the correct work, you may add another property to your portfolio.

Is Auction Finance right for me?

If you want to purchase property at an auction but your working capital is tied up in your portfolio’s equity, the appropriate option is action finance.

Maybe you have a reasonable amount of working capital in the bank, but you would like to see more development and purchase a more desirable property for a potentially greater return.

Considering your level of expertise is likewise a smart idea. From the lender’s point of view, it is much easier to lend to property developers with a proven track record of successful ventures.

Since their risk is smaller. While is conceivable to get money if you do not have a great deal of understanding, on the off chance that you are new to property development, it will likewise require included security.

Eventually, auction funding gives you the chance to add to your portfolio even though much of your money is invested in current properties; and you can get interested in real estate sales, one of the most exciting ways to get a foot  on property ladder.

We have more tips for developers or new to auctioning in our property buying guide.