Thursday, June 13, 2024

Understanding the Appeal of Property Auctions

Finding the right property to suit your current requirements and long-term goals can be a challenge. For many, it is a long and arduous process that involves exploring the potential locations, conducting detailed research on local property markets and scrutinising every possible aspect of the home in question.

Buying a property at auction is an entirely different approach, where freedom of choice is more restricted. Rather than gaining access to the UK’s entire market of vacant inventory, you limit yourself only to the select few properties that go ‘under the hammer’.

The number of prospective homebuyers attending auctions as of late has spiked significantly; more homes are being sold by way of auction than ever before, ranging from the smallest urban flats to the largest rural mansions.

But what specifically is it about auction property that holds such appeal? Why are more movers and first-time buyers setting their sights on auction property purchases, rather than traditional channels?

Bargain Properties with no Risk of Chain Breaks

There are two main points of appeal with auction properties which have taken on even greater significance in today’s competitive climate.

It is possible to pick up a property at auction for a price significantly lower than its actual market value. For various reasons, properties often need to be sold as quickly as possible, and so are listed at surprisingly low prices.

The price a property sells for will ultimately be determined by the bidders on the day. Nevertheless, huge savings can be made by purchasing auction properties, particularly for buyers on the lookout for a ‘fixer upper’.

The conventional property market has become almost impossibly competitive. The threat of being tricked or falling victim to a broken property chain is at an all-time high, as prospective buyers compete frantically for the limited inventory available.
Both of these risks can be eliminated from the equation entirely, by purchasing a property at auction. If your bid is successful on the day, the property is yours and for the exact price you offered.

Financing an Auction Property Purchase

The major caveat that comes with buying properties at auction is the requirement to pay for it in full within 28 days. With average mortgage completion times significantly exceeding this four-week payment deadline, a standard High Street loan is not a viable solution.

Short-term products like bridging finance have become a popular choice for funding auction property purchases. A bridging loan can provide access to the funds needed within a matter of days. To be repaid several months later in one lump sum payment. All with a low monthly interest rate of around 0.5% or less.

This makes it possible for a homeowner to pick up their dream property at auction at a rock-bottom price before their current home has been sold. Bridging finance is used to buy the auction property, their home sells a few weeks/months later and the loan is repaid in full.

Given the enormous savings that can be made by purchasing auction properties, a bridging loan can be a uniquely cost-effective and convenient alternative to a conventional mortgage.

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