Happy to say we finally got this one over the line!
Client had bought a disused guest house at auction. Of course, he only told me AFTER the auction had finished with the immortal words, "We've bought this - can you sort out the finance?"
Well, I suppose I do like a challenge.......!
To give you, dear reader, an idea of what is involved in arranging funding for auction properties, read on..
First - The legal contract pack. Has the client referred the legal pack to their solicitor? There may be terms in there that could be tricky to work with.
The one I am most interested in is the deadline. How much time has the seller given the buyer to complete?
In this case it was ridiculous - 10 working days. Clearly they were hoping for a cash buyer, and clearly my client hadn't read the legal pack before bidding. Anyway - what's done is done.
In reality there is no way a 10 day completion was going to be possible, given the shortage of surveyors at the moment we couldn't even get one booked in for 3 weeks.
Second challenge - Finding a lender. It may or may not surprise you to learn that not all lenders will consider a particular property. Often as brokers our clients say "just get me the lowest interest rate" - if only it were that simple. The first priority is finding a lender that will be happy to consider the property. The interest rate could be 0% but if no lender will lend on the property then it's irrelevant!
So - to sourcing a lender. This is where the old adage "it's not what you know, it's who you know" comes into play.
4 phone calls and 3 "it's not one for us" later, I have a lender that knows the location well and it happy to consider it. Following the proposal I put to them, they agreed to to fund 65% of the purchase price, and 100% of the cost of the refurbishment.
The client hadn't really given a thought to what they were going to do with the property. This is VITAL!
If a lender is going to throw a few hundred thousand pounds at a deal, they want to know what the borrowers plans are.
In this case, the plan was to apply to the council to convert the property from a guesthouse into an HMO (House of Multiple Occupation). The area has a desperate need for low cost accommodation, so fingers crossed the planning permission will be granted.
Anyway - survey done, valuation figure agreed along with the cost of proposed works - Offer issued.
Time from application to completion - 5 weeks.
Yes, it took longer than the legal pack (see above) allowed - and the consequence of this? A £6,000 penalty charge payable by the client. Upon payment, they granted an extension to allow it to complete.
The moral of the story - if you are considering buying a property at auction, it is ESSENTIAL that you first get the legal pack and refer it to your solicitor. Understand what you are getting yourself into!
Then, refer the property to your broker. They will need to understand what price you are prepared to pay, and what your plans are for the property. With that information, they can find the most appropriate lender and arrange a decision in principle for the funding.
Buying at auction can be a very rewarding experience, with good profit to be made (or bargains to be had) but prior preparation is vital.
