There are less than 4 months left for landlords to purchase property under the current, relaxed stress tests on buy-to-let mortgages and other forms of portfolio finance.
If your landlord client is looking to expand their portfolio then now is the time, and a property auction can be an ideal place to find a bargain.
From the fall of the gavel, auction purchasers have 28 days to complete on the property in question, regardless of the price. The thrills and spills of the auction room are then carried into the financial sector, with buyers scrambling to secure funds before they lose their deposits.
With such a tight timeframe to get the ball rolling, it’s important that brokers understand how financing an auction purchase works.
As with any big financial decision, it's imperative that your clients have thought through the commitment of a new property – regardless of the level of work that has to be put into it. With this in mind, a reasonable upper spending limit should be set.
“Bridging” an auction purchase is one of the most traditional forms of finance for this transaction.
Usually spanning between 3 and 12 months, bridging loans are short-term financial products with a defined exit route, usually through sale or a long-term financial product such as a buy-to-let mortgage. Processing of these products is remarkably fast, with some lenders having funding available to draw down within just days of application.
Even if traditional lenders could provide funding on such a short timescale, the property criteria that they lend against is incredibly strict. This means that some auction properties will only be considered by specialist lenders, such as the ones we have on panel.
Building an investment
This year has seen a 150% increase in demand for HMOs. Thriving on the mobility of today’s students and young professionals, self-contained units with shared amenities are a great way to maximise the profit potential of a property.
Both residential and commercial units can be converted and let reasonably easily if the client has secured proper permission to do so. Unlike a buy-to-let, properties are subject to planning permission before conversion into individual units. A license is also required to operate an HMO.
Bridging finance can either be secured on the value of the property being purchased or against an existing portfolio/residence. If your client is looking at buying a property that needs a bit of TLC before it’s let or are looking to convert to an HMO, then it may be a better option to seek finance against a main residence or existing properties as more funds will be available in the short-term.
If you or your client are interested in learning about the HMO scene, we’ve put together a handy eGuide that is useful to both broker and client alike. Covering everything from finding to financing your next step in property, our comprehensive guide will ensure you have the knowledge to operate effectively.
Make 2016 the year of the landlord!
Get in touch with a Business Development Manager today to discuss how to secure funds after an auction purchase and the products that are available for your client.
Download your free HMO eGuide here