Understanding how property auctions can work for your clients

The UK’s property market is broad and diverse. Subject to high demand among investors both at home and overseas, it comprises a vast range of asset types – and importantly, it is underpinned by an ever-expanding collection of traditional and alternative lenders, including bridging loan providers.

Finding the right type of asset in the ideal location can be tricky for a real estate investor, while the matter is made more complicated when you consider all the different avenues buyers can explore. For example, property auctions have become an increasingly popular option among buy-to-let investors seeking to expand their portfolios; in 2018, more than 26,000 homes in the UK were purchased at auction, totalling £2.89 billion worth of sales.

Here at MFS, we have seen a noticeable spike in the number of prospective homebuyers looking to purchase properties at auctions. There are a variety of reasons for this; not only do auctions protect the buyer from much-maligned gazumping and gazundering tactics, there is also a set completion period of just 28 days once a 10% deposit has been paid.

Given this short window for completion, MFS regularly receives enquiries from brokers asking how their clients can use our fast bridging loans to enable them to successfully complete on a property purchase at auction.

To make sure brokers are well equipped to support their clients at property auctions, we recently sat down with Phillip Arnold of Phillip Arnold Auctions to hear his thoughts on the common pitfalls of auction purchases, and the benefits of bridging loans.

Phillip Arnold: Setting the record straight

Auctions have become a popular avenue for seasoned investors looking to expand their portfolio. However, there are many common pitfalls facing buyers who have not undertaken the necessary due diligence. Indeed, of all the risks involved when buying a property at auction, Phillip Arnold believes there’s one challenge that stands above the rest:

“In all my years working in the industry, you’d be surprised to find out just how many buyers don’t do sufficient research before bidding on a property. And this is despite the strong advice given by lenders, brokers and auction professionals to do all the necessary research and background checks.”

So, what can brokers do to make sure their clients are adequately prepared?

Legal packs hold all the necessary information the buyer should need. It is also important to check local house prices so that when it comes to bidding, they don’t end up paying beyond the actual value of property.”

When it comes to financing an auction property purchase, a lot of buyers can be caught out by the fact that contracts need to be completed within 28 days of the gavel falling. This makes it extremely important for brokers to understand the different finance options that can be used. And of those available, Phillip recognises the benefits of bridging loans due to the speed and flexibility with which funds can be deployed.

“Bridging loans are a good choice for those hoping to buy at auctions. A pre-approval gives the buyer added peace of mind. They know they can bid, and if successful, complete within the 28-day cycle. In other words, it gives the buyer time to purchase a property while at the same time work on the longer-term finance.”

If you want to find out more about MFS and how bridging finance products can support you or your clients purchasing a property at auction, speak to a member of the MFS team by emailing enquiries@mfsuk.com or calling 020 7060 1234. Alternatively, you can download a copy of MFS’ bridging loan product guide.