Broker Guide: Securing auction finance

Broker Guide: Securing auction finance



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The huge increase in the number of lenders entering the bridging sector over the past few years has, understandably, also influenced the auction finance market. Finance needed for auction purchases must be readily available within a short space of time – making a bridging loan the ideal choice.

All of the lenders featured on our site happily offer finance for auction purchases, and we spoke to a selection of the companies targeting this arena to find out:

- What do brokers need to bring to the table?
- What type of finance is on offer?
- What new auction-based products have entered the market?

What do brokers need to do?

Richard Deacon, Sales and Marketing Director at Masthaven, stressed that brokers need to move quickly in order to secure finance. “Auction finance is a different animal to bog-standard finance. An often overlooked benefit of getting auction bridging finance is how quickly everything moves.”

Cheval’s Finance Director, Gavin Diamond, explained: “Lenders will always assess the transaction, security property and repayment method when underwriting any deal.”

Steve Barber, Director of Bridging Finance Solutions, advised brokers to ‘speak to lenders who have lots of experience in auction finance’ in order to ensure that they can get pre-agreed decisions in principle for their clients.

Bridging Finance Solutions, which has been appointed as the preferred finance provider for Auction House, has been offering pre-agreed DIPs for three years and specialises in auction property – in particular properties that need refurbishing.

Steve Barber continued: “Brokers need to speak to us at least 24 hours before the auction to get our pre-agreed facilities in place, so the client knows exactly how much cash they have got and how much they can bid up to. We can arrange finance before, during and after the auction.”

Andre Bartlett, of SPF Private Clients Limited, explained that brokers need to know a little bit extra. “Intermediaries should also find out the client’s exit plan that will allow them to leave the bridge and a little bit of background on the client. Find out which auction and which lot number,” he advised.

Steve Barber agreed. “Because we are focused on refurbishment and on buy-to-let, we need to see a solid exit.”

What type of finance is offered?

Richard Deacon said: “We offer bridging finance for both the 10 per cent deposit and the value of the house.”

Typically, it appears that many lenders, like Masthaven, will lend both for the 10 per cent deposit that is required on the day, and the later full value of the house.

So how does this affect LTV rates? Steve Barber explained his company’s rates. “We offer up to 70 per cent LTV, which may be slightly higher than some other companies – but this is because we lend against the open market rather than a forced sale within 90 days.” 

What new products are on the market?

Cheval has recently launched a new product specifically designed for the auction market. Gavin Diamond explained a little bit more. “Our new pre-arranged auction facility allows even greater flexibility as the borrower can draw and repay any funding required within the agreed funding limit of the facility.”

Cheval’s “Pre-Arranged Auction Facility” allows a borrower to pre-arrange a facility secured against a residential property, or portfolio of up to four residential properties, so that they can bid with confidence for whatever they wish to buy with an agreed maximum level of finance already in place, including typically unmortgageable properties.

Once arranged, funds can be released into a pre-agreed bank account, without further solicitor involvement, subject to 24 hours notice.

“Our product allows brokers to earn procuration fees on setup of facility and each drawdown of funds,” he continued.

SPF Finance also offer a product specifically designed for auction purchases. “It can be used if a borrower is buying before, during or after the auction. The benefits of our product lie in the pricing,” Andre Bartlett explained.

“We offer borrowers a pay rate of 0.99 per cent per month, as well as paying proc fees to brokers. Our product is mainly targeted at London and the South-east, but within that area we will lend on commercial, semi-commercial and properties that may be run down and in need of development.”

Auction finance is a particularly busy market at the moment – something which lenders appear to be recognising and tapping into, if the creation of auction-specific products is any indication.  What lenders need to see from brokers is simple: move quickly to secure a deal, choose a lender with previous auction experience, be confident of a secure exit and take advantage of the new products that have entered the sector.

These steps, combined with the ever-growing popularity of auction finance, expand the opportunity for more great deals.

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