Property auctions have become an increasingly popular route for investors in the UK.
Traditionally, the number of properties bought at auction has increased during periods of economic uncertainty. This has been accelerated through the wider adoption of property auctions with an online element, which began during the Covid-19 pandemic, as auction houses identified an obvious route to broaden their reach and attract a wider range of bidders.
Auction activity rises
According to key data from Essential Information Group (EIG), there has been a further upswing in activity in 2024, with the total number of lots offered in July increasing by 36.9% compared to the same period in 2023.
Allsop, the UK’s largest property auction house, reported more than 2,000 bidder registrations in August – a period typically known for a slowdown in activity. Moreover, Allsop’s residential auctions in August had a success rate of 92%. The industry average is 75%.
One of the reasons behind the continued rise in property auction activity could be the increasingly protracted home buying process, which could mean that an investor doesn’t get their hands on a new property for more than six months.
Set against this backdrop, auctions present a faster, and sometimes more accessible, alternative. This trend is expected to persist into 2025, with growing demand likely to intensify competition among buyers and drive-up costs. In such a dynamic market, it’s essential for investors to be thoroughly prepared before stepping into the auction room – whether physical or virtual.
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For brokers, this means playing a proactive role in guiding clients through the complexities of auction purchases, starting with understanding their financing needs well in advance.
Speed is essential
Unlike traditional property sales, auctions operate on a much faster timeline. Once a bid is successful, the buyer is typically required to pay a 10% deposit immediately, with the remaining balance due within 28 days. This accelerated pace leaves little room for the delays often associated with conventional buy-to-let (BTL) mortgages, which might not be arranged in time, especially if the property needs refurbishment or fails to meet standard mortgage criteria. As such, the importance of preparation cannot be overstated.
To help clients navigate this fast-paced environment, brokers should first find out whether their clients have a specific property in mind. Identifying the target property early allows brokers to tailor their advice and ensure that their clients have the appropriate finance in place – maybe even pre-agreeing that finance ahead of the auction.
Auction finance, often facilitated through bridging loans, is specifically designed to meet the quick turnaround times required by property auctions. This type of financing can be arranged rapidly – sometimes within days – allowing investors to have funds readily available when needed.
Pre-agreed finance
By working with a specialist auction finance provider, brokers can help their clients secure pre-agreed finance before the auction date. This approach ensures that investors can participate confidently, knowing that their financial arrangements are already underway.
Pre-agreeing finance can offer significant advantages. It provides a competitive edge in the auction room, as clients can bid with the assurance that their funding is in place, reducing the risk of losing out due to financing delays. Additionally, having finance pre-approved can allow for a smoother and quicker purchase process, as much of the administrative groundwork has already been completed.
Working with a specialist always has its advantages and working with a bridging lender that specialises in auction finance can greatly simplify the process for both brokers and their clients, as it’s more likely to be familiar with the nuances of the auction market.
Repairs and refurbishments
Another consideration when it comes to auction finance is that properties purchased at auction are often in need of significant repairs and fall outside of standard mortgage lending criteria.
Depending on the level of work required on the property, an investor buying at auction may need to consider a refurbishment bridging loan, which might be known as either light refurb or heavy refurb. While some changes to a property – such as a new kitchen, bathroom, etc. – can be carried out using a standard bridging loan, more significant work, such as making a property habitable, may require a light refurb loan, and further changes that need planning permission may make it necessary to get a heavy refurb loan.
For brokers, the primary role in the auction finance process is to ensure that their clients are adequately prepared. This involves not only arranging finance but also educating clients on the nuances of auction purchases.
By partnering with a specialist auction finance provider, brokers can offer their clients tailored solutions that align with the fast-moving pace of auctions.
