Do You Pay The Full Amount on Auction Day?

Buying at auction may seem like it’s all based on impulse. If you’ve never been to an auction before you may think it’s a case of heading down to the auction house and seeing what takes your fancy but there’s actually a lot of preparation involved, long before the actual auction takes place.

The Preparation

Viewing the house in question is a vital part of the preparation process. While it is an option to buy a property without viewing it first this is never a wise option. Photos can be deceiving and it is not until you’ve actually been to view the house yourself that you can make an informed decision about whether or not it is right for you.

The properties that will be on offer on auction day will be listed in a booklet and the potential buyer can arrange a viewing much like they would with an ordinary property sale.

Finances

The major part of the preparation process however is the finances. The buyer must sort out his or her finances before attending the auction. This may involve visiting a mortgage broker and arranging a mortgage.

If the buyer is going to need a mortgage to pay for the property then this should be in place as soon as possible. It may be that the buyer just checks out the mortgage options available to him. After the sale he will have 28 days to pay the full amount. However on the day of the sale he must pay 20% of the sale price.

The buyer must therefore have that cash available to him on the day of the auction. The current economic climate means getting a 100% loan to value mortgage is almost impossible. This means the borrower may only be able to borrow a percentage of the house price, usually around 85% in which case even buyers who are buying a house the conventional way will have to have a large deposit in order tog et on the housing market.

Purchasing at Auction

For the buyer who wants to purchase a property at auction a bridging loan may be required to pay the full amount. Since, after the deposit is paid, the buyer will only have 28 days in which to pay the full amount a conventional mortgage may not be an option. If the mortgage is not in place before the auction four weeks may be cutting it fine.

A bringing loan is a loan that can be processed within a matter of days. It’s rate is higher than that of a mortgage but the idea is the buyer will only have the loan for a number of weeks and when the mortgage is processed it will pay off the loan.

It is important the repayment vehicle, i.e. the mortgage is being processed though as if the bridging loan is not redeemed in a short a mount of time the interest on it could mean the borrower has to repay a hefty sum. Bridging loans are never intended to be used long term.