How do people finance auction purchases ?

mikeyw

Guys,

I've spotted a house coming up for auction sale in 4 weeks time but i'd love to understand how people finance such purchases.

We are homeowners but our house is not on the market yet.

The property has a guide of £160k but realistically it'll sell for well over £200K. I could raise the 10% deposit fairly easily but how do people get the rest of the money and in such short time frames and also in the knowledge they might not win and therefore not need it !

In reality to develop the house / plot we'd need to sell our existing house but that's never going to happen inside 4 weeks and what if we were to lose the auction we are then homeless with a bit lump of money sat in the bank.

I reckon the plot could be developed into 2 houses, each with a value of £200K plus - are you able to raise finance on a house not even built to allow us to do this ?

In reality it appears the only people who could win this auction are cash rich investors who can buy outright the mortgage it it to raise the finance to develop the plot and sell on.

I'm really keen try and get this plot but I can't see a way of financing it without selling our current home (worth £350K)

As you can tell i'm new to this game but desparate to give property a go, ideally without having to sell up our current house if possible.

Mike.

Doozergirl

There's a large element of risk in arranging the finance if you're using a mortgage or trying to remortgage your own house at short notice. You need to be prepared and if you're looking for a property, there will be another one along when you are properly ready.

You do need to arrange the finance. Probably by remortgaging your existing house. You will need more than the compulsory 10% as a deposit. I don't know whether the bridging companies that used to tout at the auction houses are still there nor have I ever used them. They would advertise in the catalogues of the larger auction companies.

I now you haven't given us much detail but two houses worth £200k plus each on a plot where you're paying £200k plus doesn't sound like a great buy to me. I'm probably missing something though.

Frankly, to minimise your risk and your gearing it's worth giving up the house for a while if you're serious about it. Especially if you only have £20,000 to start on a purchase as big as that. We gave up our house and rented for a while appreciating that we weren't going to have everything all at once. You have to fund the work yourself for some time even when you've raised the deposit.

Essentially it's a business proposition and Business Banking would be the place to go except they are very much property adverse at the moment.

princessamy86

Most people who buy at auction are indeed cash rich investors, as they can afford to move straight in and not muck about with surveys. They often have a practised eye, and there are several investors I know who don't even look at a house before they buy-still making profit most of the time. However, if you don't have cash, you could look into specialist auction finance companies (have a quick google), remortgaging your own property (assuming you have plenty of equity), or getting a fresh mortgage out on the property you wish to buy. Pitfalls of getting a mortgage to buy at auction: they may not lend on the property, you will have to get a survey done before the auction date, you may not end up with the house after all and you will have paid fees out. Depends which is the best situation for you!

theartfullodger

Some would say that if someone needs to ask how to finance an auction purchase you can't afford one.../would be taking too large a risk to buy at auction...

Hope it works out: I did buy a house once at auction and, although I eventually bought with a mortgage I did have the cash at the time available,,, (and I'd never seen inside it before I stuck my hand up...)

Cheers!

Lodger

PasturesNew

I'd write a cheque out :P