Why Property Auction Finance is Booming!

24 Jun 2021

Why Property Auction Finance is Booming!

There is little doubt that UK buyer confidence is at an all-time high.

We've recapped previously in our blogs how property market growth and prices have soared over the last few months!

As we head into summer, one key area of mortgage finance seems to be expanding rapidly: property auction finance.

In this article, the Revolution Finance Brokers team explores the appeal of auction finance - and how sellers are taking full advantage of competitive bidding to secure outstanding prices.

The Increase of Property Sales Via Auction

The online property auction site, IAmSold, reports that the number of bids received in 2021 so far have broken all previous records.

During the first five months of the year:

  • Over 22,000 bids were submitted.
  • Bidding increased by 205% against 2020.
  • Total bids were 146% higher than in 2019.

In May of this year, nearly half of all properties sold went for over their reserve price, indicating the strength of the market - and how accessible auction finance is making it easier for investors and buyers to secure the borrowing required.

Digital auctions are a relatively new phenomenon in the property market but have grown significantly. We see considerable rises in things like:

  • Virtual house viewings.
  • Online property sales.
  • Digital auction processes.

Due to social distancing regulations, these result from the need to find new ways of buying and selling homes whilst conventional options are closed or limited.

Now we've explained why auctions are becoming so popular, let's look a bit closer at the pros and cons of investing in a property this way!

Pros and Cons of Auction Property Investments

There are some distinct benefits to property auctions.

They are predominantly used by investors or buy to let landlords looking for bargain purchases with the potential for excellent rental returns.

However, there isn't any reason a homebuyer couldn't look at auctions as an alternative to the traditional estate agent route.

Benefits of Buying a Home at Auction

  • Depending on the popularity of the property, you may find that there is less competition and a chance to bid if you're struggling to make an offer in time.
  • Some auction properties have a reserve at far lower than you might expect to pay on the open market.

Potential Downside of Property Auction Purchases

  • Suppose you don't have time to read the details carefully and review all surveys and reports available. In that case, there is a chance you'll buy a property that requires a significant investment to bring it into good condition.
  • Auctions can get competitive, and most of the buyers are seasoned investors.
  • You need to fix a ceiling price before the bidding begins (if the auction runs over several days) to avoid spending over budget in a competitive bidding scenario.

Many buyers and investors are currently finding the market incredibly fast-paced.

It feels like homes sell as soon as they appear on the market - and often immediately after the first viewing by the successful buyer.

Provided you're confident the property is right for you and you're using a reputable auction house or provider, auctions can be a far easier way to buy a home.

Financing an Auction Property

Auction finance makes it possible for buyers to secure their purchase well within the 28-day deadline.

Most property auctions work like this:

  1. You pay a 10% deposit on the day to secure the lot.
  2. The auction house will advise on any fees payable by the buyer (although their commission is often deducted from the seller's proceeds depending on the provider).
  3. You must remit the 90% balance within four weeks.

Unfortunately, a typical mortgage takes longer than four weeks to process, primarily because of the affordability assessments and legal paperwork requirements.

You'd also find it impossible to take out a standard residential mortgage on a property requiring significant renovations if it were deemed uninhabitable in its current state.

Therefore, property auction finance is the most convenient way to pay the 90% balance, ensuring you don't forfeit your deposit and lose out on your purchase.

The Revolution Brokers team advises you to get in touch if you anticipate bidding on a property auction.

If you have an agreement in principle ready to go, you'll have a sure-fire way to get the finances in place straight away, without any risk of missing the payment deadline.

Five Steps to a Successful Property Auction Purchase

Let's run through our tips to ensure your auction investment goes to plan!

      1. Make a plan in advance.

Decide what property you want to bid on or what sort of home in which area would be suitable for your rental portfolio.

Make a shortlist, and work out what level of auction finance you'd need, based on your budget.

      2. Secure provisional acceptance.

Next, you'll go through the provisional application with the Revolution team on hand to streamline the process.

Lenders will usually run credit checks, verify your reason for the purchase (e.g. are you buying a residential home or an investment property?) and offer you an agreement in principle.

      3. Get your deposit ready.

The initial deposit needs to be paid on the day, so you'll want to be ready to move quickly.

If you're unsure about your ability to raise the cash for a property auction deposit, give us a ring, and we'll run through the borrowing options!

      4. Place the winning bid.

On the day, you'll need to bid up to your maximum budget - be careful not to get over-enthusiastic with your bidding. Over-bidding at auction is easily done.

      5. Finalise your auction finance deal.

Finally, you'll need to complete the property auction finance application, with the funds usually available within just a few days.

Your lender will have run through their pre-application checks already, so if nothing has changed and there isn't anything undisclosed in the original application, this should run smoothly.

Longer-term, you can look to refinance your property auction finance with a regular mortgage, without any time pressures.

For more information about the current interest rates and terms available on property auction finance, please get in touch with the Revolution team.

Contact us now to discuss your personal options, Revolution Finance Brokers specialise in commercial and residential finance in Essex, Kent, London and Hertfordshire.



Almas Uddin

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.