An increasing number of people are flocking to auction rooms, realising the benefits of investing in residential property in a bid to generate high returns. Tomer Aboody, director of bridging finance lender MTF, takes a look at this growing market and how a bridging loan can deliver the speed and flexibility needed when financing a property purchased at auction.
Property auctions in the UK are rocketing, with 12,894 lots sold in the first half of 2014, the highest number recorded in seven years since the market crashed, according to data published by national auction analyst EIG. The market bottomed in the first half of 2010 when only 9,557 lots were sold but has since grown and is on an upwards trajectory. The amount raised at UK property auctions hit £2bn in the first half of 2014, a 21% increase on 2013.
Driven by attractive prices and the speed at which a deal can be executed, auctions are appealing to a wider audience including buy-to-let investors, which are increasingly visiting auction rooms in a bid to find a good deal.
2014 has been an excellent year for property investors. Rising rental yields, driven by a surge in tenant demand and more stringent mortgage regulations means now is the perfect time for borrowers to get into the buy-to-let market or expand their current portfolios.
Landlords can benefit from buying a property at auction below market prices, typically within a 28-day time frame. They can also benefit from contributing smaller deposits of around 10%. An investor wanting to take advantage of these opportunities can often face barriers when it comes to raising funds, with a reduction in lending from high street banks and lengthy application processes on the mortgages they do provide.
These changes have caused auction buyers to rethink their financial arrangements and seek alternative methods of funding, with bridging loans offering a real time solution to the funding gap. MTF has seen a notable increase in bridging loan applications from investors and developers wanting to buy properties at auction.
One of the main benefits of a bridging loan is the speed at which funds can be delivered. Where a mainstream bank may take several months to put together a loan for a borrower, a bridging finance company is often able to make lending decisions within hours of initial enquiry so funds could be released in less than a day.
MTF recently completed a case for a client who needed £215,000 to complete an auction purchase and make renovations to the property. His mortgage lender couldn’t provide the financing in the timeframe required and so he faced losing his deposit.
We provided a £215,000 bridging loan, at 65% loan-to-value over a 6 month term at 0.99% per month, with no exit fee or early redemption penalty. We managed to provide the loan within 24 hours, saving the client’s deposit. He had the time to renovate the property and increase its value before refinancing out of the bridge loan with a buy-to-let mortgage.
Some bridging finance providers can work with clients to ensure they go into an auction fully prepared and at a competitive advantage to others. MTF clients look at catalogues to identify target properties, setting themselves a maximum threshold they want to pay. We can review their loan options at an early stage, prior to auction and provide them with indicative terms. This way they can go and bid with confidence, knowing they have the adequate finances in place so that a transaction can complete with minimum fuss.
