1. Arrange your finance in advance
By getting a pre-approved loan decision you know exactly what you can afford to bid, and what it’ll cost you. Also remember that there may be additional charges such as lenders’ legal fees. It is also worth having in mind that there may be additional charges such as lenders’ legal fees. There are several types of finance available for those buying at auction ,among which the most commonly-used auction finance is a bridging loan, which lasts up to 12 months.
2. Making sure you have means of payment
When the hammer goes down, the sale is legally binding. You’ll have to make a payment there and then, typically by credit/debit card or cheque, as cash might not be a good option.
The payment will include a deposit (10%), an administration fee to the auctioneer, and possibly a ‘buyer’s premium’.
3. Beware the six-month rule
If you’re buying the property as an investment or to let, some mainstream lenders won’t lend on it until you’ve owned it for six months. On top of this, they’ll also insist the vendor has owned it for six months too.Even seasoned auction professionals can be caught out by this, so it’s important to find out how long the vendor has owned the property. Otherwise securing funding could be an issue with a high street lender.
4. Check the completion period
Most of the time, you’ll have 28 days to complete the purchase and pay the balance you owe. However, rapid completions are not unheard-of, and may mean you have far less time to get your finances in place.This information can be found in the legal pack, and is often included in the auction catalog. The auction caller may also flag this before bidding starts.
5. The legal pack
Legal packs contain documents related to the property, and is prepared by the seller’s conveyancer.
Each one will be unique, so investors should always read the pack no matter how experienced you become. Make sure you’ve read the small print, as it’s often in these sections where surprises – such as covenants, restrictions and rights of access – are noted.
You can take a look at the legal pack on auction day, but it’s a good idea to request it in advance. If you’re happy with it, get your conveyancer to check it out too.
6. Investigate any tenancies
Is the property you are planning to purchase currently being rented out?
Take the time to find out some background information about both the tenant and the tenancy agreement. Assured Shorthold Tenancies (ASTs) can cause issues for finance with some of the big lenders.
If you buy a property with a regulated tenant, it may be a long time until that property is vacated, as they will have the right to remain and rents might be below the market rate.
7. Keep calm
If a particular property attracts a lot of interest, it’s all too easy to keep bidding. But remember, once the hammer goes down you’re legally committed to the property. Stick to your budget and hold your nerve – often properties earlier in the catalog tend to attract the most interest, and the crowd will thin out as bidders secure properties. And, although some of the best lots may have been kept back to keep the auction room busy, other lots later in proceedings may be better value.Remember, also, the guide price is just a rough guide. The property could go for significantly over that price, so it’s important to ensure you don’t stretch yourself.
