Despite the difficulties presented by the fallout of the Brexit vote, the property auction world had a strong year overall: between February 2016 and January 2017 the number of property lots offered rose by 1.7% to 33,793, according to the Essential Information Group. 

It’s easy to understand the appeal of a property auction to the savvy investor. Vendors want a quick sale, and there is no chain to worry about, meaning buyers are generally able to secure an even better price for the property. It can be the perfect place to pick up the worst property on a good street – it might be missing a kitchen or bathroom, or just badly need some updating. Investors thrive on the opportunities these properties present.

Helping auction buyers has long been a central part of what we do at LendInvest, and it has been encouraging to see so many brokers becoming more active in this area of the market. We always did a lot of auction business, but we launched a dedicated auction finance product in the new year, which has had a tremendous response from brokers thus far, and which saw our first completed case within a matter of days.

How can brokers assist those looking for auction finance? 

That was an interesting case because it really highlighted the important issues when buying at auction, and how it can vary slightly from a traditional property purchase.

When an investor buys a property at auction, they need to put down a deposit of 10% of the purchase price within 24 hours. They then have to pay the remaining 90% within 28 working days of the gavel going down.

The auction market is still dominated by cash buyers – around 80% of purchases are made for cash. 

Part of that is obviously because the investors have the money to spend. But it’s also been down to necessity – as brokers are only too aware, high street lenders are simply unable to deliver funding that quickly.

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With that first auction finance case, speed was even more crucial as the initial lender dropped out, citing a valuation discrepancy. However, after coming to LendInvest, we were able to deliver the funds within just five days. 

These problems aren’t unusual - some of the properties available at auction are in a poor state, and you wouldn’t be able to get a mainstream mortgage on them. But there may be huge potential there. LendInvest is committed to backing these entrepreneurs with fast, efficient funding that allows them to complete the purchase and get on with the job of delivering the housing the nation so badly needs. It’s not just new homes that are the answer to the housing supply conundrum – we need to make far better use of the bricks and mortar already in place.

Property auctions are popular with investors

The role of the broker

As auctions become more popular among investors, it’s an area of the market that is likely to grow. The best brokers are already on top of this, keeping up to date on which lenders are active in the market and who is best placed to help their clients secure that auction property.

It doesn’t start with auction day, though. 

Generally, auction buyers will spend some time a few weeks before the auction itself going through the catalogue to see what lots are available. As we head into a busy time for the auction market, these catalogues will be going out with increasing frequency to your clients – it’s a good idea to have regular chats with them about any potential purchases they have spotted, well in advance of auction day. 

Active brokers in the market will often discuss the exit plans with their clients even at this early stage; are they planning to ‘flip’ it – simply carrying out the required renovations and then sticking it back on to the market – hopefully at a tidy profit? Or are they planning to hold it as a buy-to-let.

This is where experienced brokers really come into their own: the buy-to-let market has changed so significantly over the last 18 months that what would have been a simple buy-to-let may be rather more complicated today. Intermediaries know only too well the difference the new stress tests make to getting a buy-to-let case to add up.

Brokers already add enormous value to their property investor clients. Getting to grips with the auction finance world is another string well worth adding to your bow.