Debunking Property Auction Finance Myths

Buying property at auction can be highly effective at boosting your property ROI. Yet many potential buyers hesitate due to widespread misconceptions about how auctions and auction finance works. Myths and misunderstandings can make the process seem far more intimidating than it actually is, often leading investors to miss out on excellent opportunities. This article aims to clear up some of the most common myths surrounding property auction finance, offering a clearer perspective on what to expect.

Myth 1 – You must have all the money upfront

One of the most persistent myths is the belief that buyers need to have the full purchase price in cash at the time of bidding. While auctions do require a deposit, typically around 10% of the property price, buyers usually have a set period, often 28 days, to arrange the remaining balance.

Auction finance options, including bridging loans and specialist lending products, allow buyers to secure the property while finalising long-term funding. These financial solutions are designed to accommodate the auction process. As a result, it can be possible for buyers to complete their purchases without needing the entire sum immediately.

Our Alternative Overdraft facility is an ideal solution for auction finance. These loans are available from £250k to £2m for 3 to 24 months and allow for multiple drawdowns. Interest is charged on the balance outstanding and can be serviced. It also avoids expensive, repetitive setting-up costs. These attributes make it perfect for site acquisitions, property auction purchases or to fund work-in-progress projects.

Myth 2 – Auction Finance is too expensive

Many people assume that financing a property purchase through auction-specific lenders is costly. The key is to have a clear exit strategy, whether that involves refinancing with a longer-term mortgage or selling the property at a profit. When used effectively, auction finance can be a powerful tool that allows buyers to take advantage of opportunities they might otherwise miss.

Myth 3 – Auction properties are always run-down

There is a common misconception that only distressed or dilapidated properties are sold at auction. While auctions do include properties that require refurbishment, they also feature homes in good condition, repossessed properties, investment portfolios, and commercial buildings. Some sellers choose auctions for the speed and certainty they offer, rather than because their property is in poor condition. Investors should always conduct thorough research and, if possible, arrange a viewing to assess the property’s state before placing a bid.

Myth 4 – Only investors and developers can buy at auction

Another widespread myth is that property auctions are exclusively for seasoned investors and professional developers. While it is true that auctions attract many experienced buyers, they are certainly accessible to first-time investors. As long as buyers have their finances organised and understand the auction terms, there is no reason they cannot purchase a property this way. Some buyers even find that auctions provide access to properties they might not have been able to secure on the open market.

Myth 5 – Auction Finance takes too long to arrange

Many assume that securing finance for an auction purchase is a slow process. However, specialist lenders offer solutions that work within the tight deadlines required. Bridging loans and overdrafts, for example, can be approved far more quickly than traditional finance. Therefore, giving the buyers ability to meet auction house completion deadlines. Working with experienced brokers and lenders who understand the auction process can ensure funds are available in time, making auction purchases more feasible.

We have been providing financing for over 30 years and are ideally positioned as a primary lender to get the finance you need swiftly. As a result, we have a thorough understanding of the auction process and are experts in tailoring our financing for your exact requirements. If you or your client are concerned about securing finance in time, you have no need to worry with our Alternative Overdraft.

Myth 6 – If you can’t complete, you lose everything

While failing to complete a purchase within the specified timeframe can result in losing the deposit, there are options available before reaching that point. Buyers who anticipate difficulty in meeting the deadline should communicate with their lender or explore alternative finance solutions. In some cases, auction houses may grant extensions, though this is not guaranteed. The key to avoiding this issue is preparation, having a strong financial plan before bidding significantly reduces the risk of losing money, such as short-term financing.

Myth 7 – The buying process is too complex

Some potential buyers are put off by the belief that purchasing at auction is overly complex. In reality, the process is often more straightforward than buying through traditional methods. Auction purchases come with clear terms, fixed timelines, and fewer opportunities for deals to fall through due to issues such as chain breaks. As long as investors understand the requirements and seek professional advice where needed, the process can be fuss-free.

Myth 8 – You don’t need legal advice for an auction purchase

Some believe that because auctions move quickly, legal checks are unnecessary. This is a risky assumption. Before bidding, it is essential to review the auction pack, which includes legal documents such as the title deeds, lease details (if applicable), and any restrictions on the property. A solicitor or conveyancer experienced in auction purchases can help identify potential legal issues before committing to a purchase. Skipping this step could lead to unforeseen complications later.

Myth 9 – Auction properties always sell far below market value

A common belief is that properties at auction always sell for bargain prices, but this is not necessarily the case. Auctions attract competitive bidding, particularly for desirable properties, and in some instances, properties can sell for more than their estimated market value. The final sale price depends on demand, competition, and the property itself. Investors should always set a budget and stick to it to ensure they do not overpay in the excitement of bidding.

Myth 10 – Auctions are a last resort for sellers

While some sellers turn to auctions because they need a quick sale, many do so for other reasons, such as achieving a better price in a competitive bidding environment. Auctions can be particularly effective for properties that are unique or difficult to value through traditional methods. The certainty of a sale within a fixed timeframe also makes auctions attractive to sellers looking to avoid prolonged negotiations.

Conclusion

The myths surrounding property auction finance often deter investors who could otherwise benefit from this potentially lucrative route to property investment. While auctions operate differently from private sales, they are not as daunting as they may seem. With the right preparation, a solid financial plan, and professional guidance where needed, purchasing property at auction can be a viable and efficient way to acquire property.

If you have any questions about funding auction purchases for yourself or your client, don’t hesitate to get in touch. Our friendly, experienced BDMs are on hand to assist with any query you may have.