The lot details for Lot11’s next quarterly auction will be appearing on its website this week, with LendInvest branding appearing alongside those pre-qualified properties.

Getting the finance right is absolutely vital when buying a property at an auction, which is why we wanted to help provide potential buyers and their brokers with as much information as possible from the outset.

So how do lenders decide whether to lend against an auction property?

What a lender looks for

The first question any lender will ask is: what is the proposed use of the property? Is it a commercial property or residential? It’s a much more straightforward decision for lenders if the property is going to be residential, simply because there is such a clear demand for it due to the housing shortage.

Lending against a commercial property when it is untenanted is rather less straightforward. What business would want to rent that space? What would they be willing to pay? How much work would need to be done to make it suitable for that business? The whole process becomes more speculative and, as a result, less attractive. That’s not to say that lenders won’t do it, more that the finance may be more expensive.

The condition is also a significant issue for lenders to assess. Auction properties often require substantial work. Lenders will generally be more comfortable lending against properties where only simple work is required. After all, if the property only requires minor work, the capital sources will tend to be more readily available.

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Lenders will also look carefully at the location. It’s important to establish how ‘liquid’ an area is. That means comparing the housing stock in the area to the number of property transactions. If there is a large turnover, that’s a pretty good indication that the area is a desirable one – good news for lenders, as that means it will be relatively straightforward to sell the property on should the borrower get into trouble.

The role of intermediaries in auction finance

Intermediaries play a vital role for many auction buyers. Sometimes the buyer will take steps to arrange finance well in advance of the auction. To do this, it is sensible to ask a broker to undertake a price discovery process to obtain the best auction finance deal available. Essentially the buyer will call up their broker to explain that they are planning to bid on the property, and to ask their broker to establish which lenders are most likely to fund the transaction.

Our partnership with Lot11 should help intermediaries, as they will know that so long as the prospective buyer has a good credit profile, they have a benchmark against which to measure whether they can find a better offer for their client.

Other buyers will only contact their brokers after they have already secured the property. In some ways this makes sense, as it ensures that work only goes into a transaction that will definitely happen. It does, though, mean that you have to move a bit quicker. This is a second area where the expertise of the broker comes in – specialist intermediaries are well placed to know which lenders are keen to lend, and can deliver the funds their client needs on a timely basis. That expertise is invaluable when the clock is ticking.