How Bridging Finance Can Help You Secure a Million-Pound Plus Property at Auction

Shows like Homes Under the Hammer have popularised the purchase of ‘doer-uppers’ at auction. But it’s not just cheaper properties or renovation projects that are sold this way; more people than ever are securing high-value properties and land at auction. In fact, in 2022 there was a 100% increase in the sale of million-pound plus properties by auction in the UK, from the previous year.

Whilst in America a 105,000 square foot Bel Air estate known as The One, sold for $141 million in 2022. Setting the record for the most expensive residential property ever sold at auction in America, nearly twice as much as the previous U.S. record.

So why is buying a million-pound plus property at auction becoming so popular?

Cost

The biggest benefit to buying a home, or indeed any property or land at auction is the opportunity to buy at potentially a fraction of the price. Figures suggest that properties typically sell for as little as 70% of market value, and if you’re buying a property of over £1m, this amounts to a significant saving.

Speed

You can move very quickly when you buy at auction, with the entire buying process being completed within a set timeframe, usually 28 days after the auction. The process is not affected by lengthy delays from other parties or breakdowns in communication and you don’t have to worry about the usual delays in selling. However, the quick turnaround necessitated by auctions does mean a traditional mortgage is unlikely to be a suitable financing vehicle for the transaction. More on this later.

Transparency

You’ll have visibility of the other bidders and their bids, and there’s no risk of gazumping after the offer is accepted. Contracts are signed as soon as the auction is over so you can be assured that it’s a done deal.

Lower Competition

Property auctions attract a significantly smaller number of people when compared to traditional methods of buying a property. Competition varies from auction to auction, but overall, the pool of people who are interested and familiar with the real estate auction process is typically much smaller.

Where do I find a million-pound home for auction? 

If you’re interested in buying a property at auction there are several options available. Your real estate broker or buying agent may be able to help you with upcoming properties for sale at auction. There are also some online listing services that can give you a feel for what’s available such as OnTheMarket. The best way, however, is to contact your local property auction house.  They’ll be able to add you to their mailing list, so you receive the latest auction catalogues.

Many people don’t realise that you can actually arrange a viewing of a property before the auction, through the auction house. It’s prudent to take someone knowledgeable with you to the viewing to give you an idea of the works required to the property, such as a surveyor, builder or electrician.

The auction house will usually be able to provide a legal pack, which contains key information about the property. Once you’ve found a property you’re serious about bidding for, it’s a good idea to ask your solicitor to look over the particulars and terms and conditions ahead of the auction, so there’s no surprises down the line.

What should I be aware of when buying at auction?            

You might not have access to as much detail about the property as you would if you bought in the usual way, particularly its structural condition. Some properties sold at auction fall into the category of problem properties. This can include properties with existing issues that make them challenging to sell on the open market. This is why it’s important to research thoroughly and seek professional advice, to better understand the property’s condition and identify any potential problems before bidding.

The excitement of an auction can lead to overbidding on the day, so it’s best to set a budget and stick to it. Avoid getting caught up in the heat of the moment and overpaying, however much it might be tempting to do so.

What paperwork do I need to bid for a property at auction?

If you plan to make a bid in an auction, you’ll need to have photographic ID (such as a driver’s license or passport) and proof of residency with you. If the auction is online, you may need to provide these documents before your bid can be accepted.

You’ll also need proof that you have the available funds to buy the property within the timeframe set, usually 28 days. This can be a sticking point for many due to the turnaround times involved in buying a property at auction.

How do I secure financing for this type of transaction?

When buying a property at auction, the successful bidder must usually pay 10% of the purchase price on the day. Full payment is then expected within 28 days. This timeframe is too short for many mortgage lenders, and many buyers do not have the huge sums of cash necessary to buy a high-net-worth property outright. This is where bridging finance can be extremely beneficial.

Auction Bridging Finance

For those looking to buy through auction, a bridging loan is the perfect funding solution and can be arranged either ‘in principle’, prior to the auction or very quickly after. The speed at which bridging finance can be arranged is one of its main advantages.

A bridging loan can also be used for auction properties that are deemed uninhabitable. This type of property will not, in most cases, be eligible for a standard mortgage product until it has been upgraded to acceptable standards. A bridging loan can help bring the property up to a useable standard. This enables individuals to purchase property with potential at a much lower asking price. In addition they can be used for commercial and mixed use properties, as well as land with or without planning permission.

This type of loan is typically offered on a short term, interest only basis, usually for up to 12 months, although in some cases it can be extended to 24 months. You make no capital repayments with an auction bridging loan. At the end of the agreed period, you will repay the amount borrowed along with any accrued interest. Therefore, an exit plan is required for this type of finance, typically repaid by selling the property, an existing property or refinancing with a long-term mortgage.

The amount offered will depend on the lender, and unlike more traditional loans, bridging finance is not necessarily based on income or credit history. A broker who understands the intricacies of this type of lending can negotiate the best deal for your circumstances. They’ll usually have access to a wider range of lenders and products than you would be able to find directly. Some lenders will only deal with a panel of brokers. A broker can also help borrowers secure a loan quickly by ensuring the relevant documentation is in order and addressing queries from the lender, as speed is of the essence when buying at auction.

Buying a high value property at auction can seem like a daunting process but take the right steps to research the property and put in place robust financials, and you could end up with your perfect property for much less than market value.

If you’re considering purchasing via auction its worthwhile speaking to a bridging finance expert in advance. At Enness we have vast experience in all forms of high-value specialist finance, including bridging loans. We have access to a huge range of  lenders, helping our clients bid in confidence on residential, commercial or mixed use properties, as well as land with or without planning permission.