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February 02, 2017

A guide to Auction Finance in 2017

Over the coming weeks, property auction houses across the country will begin sending out their catalogues to prospective buyers in time for the first auction series of 2017. It’s an exciting time for investors, well aware of the opportunities the properties on the lot sheets offer them and their portfolios.

But it’s not just investors that should see the start of auction season as an opportunity. It’s also a great time for mortgage brokers to tap into a market which is ripe for their advice and expertise.

It’s true that cash buyers dominate the auction market. The most recent figures suggest around 80% of purchases are made in cash, primarily because mainstream lenders are simply unable to deliver the required funds in time.

Despite this backdrop, however, there is an appetite for auction finance, for buyers who recognise the benefits of making purchases with well-priced, timely leverage.

At the tail end of 2016, LendInvest launched our first auction finance product. It has been specifically designed for auction buyers; it allows for a fast-track service to get deals over the line swiftly and comes with a 50% discount on the valuation fee and no exit fees to worry about. In recognition of the fact that properties which come up at auction come in different shapes and sizes, the loan size ranges from £75,000 all the way up to £7.5 million.

Since launch, the auction finance product has had a strong response from our broker partners. Intermediaries consistently tell us that speed is a significant issue when it comes to arranging finance for auction purchases. That’s not surprising – buyers have to stump up a 10% deposit on the day they win the bid, and the remaining balance is due within 28 days.

As a result, they recognise the importance of keenly priced finance from a lender with a strong reputation for delivering funds on schedule, a reputation that LendInvest has worked incredibly hard to build.

A tough 2016, a stronger 2017

In recent history we’ve not seen a more tumultuous year for the property market than 2016, and the auction sector was not immune to that.

According to the Essential Information Group, which monitors statistics for the sector, activity last year fell by around 10% on 2015. There are a number of clear reasons for that, not least the additional Stamp Duty charged on investment properties which has made ‘flipping’ properties less financially attractive, at least to the amateur investor.

However, we still see strong interest from property professionals. Not only are they better positioned to absorb additional costs, such as the new Stamp Duty charge and the various changes to taxation, but they are also able to step in and pick up properties that the part-time investors are now selling off. To make property investing worthwhile now takes more planning and more careful assessment of the costs involved, but that suits the professional investors that we work with and who are most likely to target property auctions.

Auctions are changing

It’s also important to recognise that the way properties are sold via auctions are changing. When you think of a property auction, you probably immediately picture something you might see on Homes Under The Hammer, a room filled with excitable investors looking to pick up a cracking deal.

But the internet is changing how that works, with dedicated online auction houses beginning to make an impact, allowing prospective buyers from across the world to monitor properties and place bids without having to leave their homes.

LendInvest has already partnered with LOT11, the online auction house, to pre-qualify the properties at its auctions which fit within our criteria, allowing clients and their brokers to arrange finance well in advance of the gavel going down.
It’s an area worth watching, for brokers and buyers alike. As an online lender, we’ve long championed how technology will improve the mortgage process; sooner than that though, we should expect to see similar disruption across the purchase process.

 

Originally published in Bridging and Commercial.