How does auction finance work?
Auctions can be a great way of getting hold of property at below-market value. However, because sales are usually announced and completed quickly, it can be hard to make sure you have finance in place in time.
If you make the winning bid at a property auction, you’ll have to pay a 10% deposit on the same day – which is usually non-refundable. You’ll then have 28 days to pay the remaining balance.
Mortgages take time to arrange so they’re no good in this scenario. On the other hand, auction finance can sometimes be arranged in a matter of days.
With property auction finance, you’ll secure a provisional agreement from a lender (also known as an offer in principle) before the auction. They’ll agree to provide the financing you need subject to certain stipulations.
After you’ve bought the property, the lender will arrange for a formal valuation of the property and then make a more definite offer for the finance.
How long are the terms?
Auction finance usually covers a term of about six to 12 months, which should give you enough time to renovate the property. After that, you can either refinance or sell it to someone else.
What are the costs involved?
As well as the interest on the finance itself, you’ll usually have to pay:
- An arrangement fee
- A brokerage fee (unless you went direct)
- Legal and valuation fees on the lender’s behalf
You’ll also usually need to put up a deposit of around 25-30% of the total amount you’re borrowing.