Blog / Mortgages

Auctions can be a good place for investors to pick up a property at a competitive price, but it can seem daunting to investors who have not done so before – this is where brokers can help.

Brokers can help guide their clients through the steps and make sure that they have the necessary finance in place to be able to secure the property they want, before they go to auction.

There are various finance options that investors should be aware of ahead of going to an auction. When looking for finance, potential buyers need to know that an Agreement in Principle should be obtained prior to the auction. Here are some of the key types of finance:

Short Term Loan (STL) – If an investor needs to carry out work on a property then a refurbishment loan is the right finance for them. It will depend upon the amount of work to be carried out as to whether a heavy or light refurbishment product will be taken.

Development finance – If purchasing land to build property, development finance would be used. A typical set up would help with the purchase of the land and the build costs.

Buy to Let (BTL) – If the property they are looking to purchase requires no work to be carried out before letting out, a term product would be most suitable.

Re-mortgaging – Re-mortgaging can be a way to release equity from a property in order to raise capital, which can then be used to purchase a property at auction.

Secured loans – For BTL investors, secured loans or second charge mortgages provide a way to release equity from a residential, BTL or commercial property, without re-mortgaging.

In the cases of short term loans and development finance, these will need an exit route and brokers need to make sure that investors have this in place at application stage.

It is worth making investors aware that if they want to be extra cautious, they may wish to pay for a mortgage valuation to be carried out before the auction to ensure the property is suitable for mortgage purposes. This means that they can attend the auction with a formal mortgage offer, however, this can be risky as they may not be successful in bidding for the property they want.

This article has been written by Julie Griggs, Director, CPC Finance. For more information visit CPC Finance

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