Purchasing a property at auction is the ‘sprint’ of the property market. It is a popular option for many property investors and can be very exciting and potentially very profitable – just as the showpiece 100 meter sprint is for athletes like Usain Bolt. I have a number of clients who have made hundreds of thousands of pounds with astute purchases at the auction ‘sprint’. However, it needs careful preparation and ‘warm up’, particularly in finding the advisory, finance and legal support that have the agility to support you.

It pays to plan ahead if you’re considering an auction purchase. When you buy a property at auction, you exchange contracts on the same day and pay a 10 percent deposit. You are then required to complete the purchase within 20 working days. If you don't, you risk losing your deposit and being sued by the vendor for any losses they incur. Also, unlike a normal purchase through an estate agent, you cannot go back and renegotiate the purchase price to close this funding gap. With an auction purchase you have exchanged contracts and the purchase price is fixed, so overpaying for a property can lead to a funding shortfall that you will need to meet.

The main issue with financing a property at auction is finding a lender that can meet the deadlines required. Typically with an auction purchase you need to complete within 20 working days; some conditions of sale specify a 15-day completion deadline.

These are very tight deadlines that high street lenders cannot usually work to – often they just aren’t set up for the sprint. Some of our high street lenders are taking 8-12 weeks from application to completion and their processes could never meet an auction deadline. The good news for potential purchasers is that specialist lenders like Shawbrook have dedicated departments to meet these challenging deadlines. Approvals can be obtained in four hours, valuers and solicitors can be instructed on the same day that you purchase the property, and mortgage offers made within 24 hours, ensuring the tight deadlines can be achieved.

Our analysis of the market shows that Shawbook has the most competitive short-term loan product. This was exemplified when working with a client who was an existing customer, with his latest property purchase.

The client secured the property at an auction sale on the 15th April 2014 for a price of £195,000, giving him the statutory exchange period of 28 days to find finance. The property itself was in a reasonable and habitable condition and was currently let to a tenant on a 12 month AST producing £900 per month. The market demand for the local area showed that similar properties in the area were valued at approx. £300,000. The client’s plan was to purchase the property, perform light re-furbishment works equating to approximately £1,000 and place the property back on the market with an estate agent, selling for £300,000.

As an adviser that has acted on numerous auction purchases, we know the importance of these deadlines and have the experience to handle any issues that might crop up...they normally do. We prioritise all of our auction cases and it doesn't matter if it is an evening or weekend - we will still work on the case to resolve any issues and ensure it progresses to completion on time.

Through working with Shawbrook we were able to secure the client a loan of £136,500 – 70% of the £195,000 purchase price, on their STL1 product over a 12 month term.

Advocate Finance having a great working relationship with the Short Term Lending team at Shawbrook and they were able to complete this application just 14 working days from submission. This allowed the client to purchase the property quickly, conduct his refurbishment works and give him enough time to sell the property.

What Shawbrook offered was a very clear and transparent service with market-leading interest rates for the full term of the loan. They also don’t charge exit fees that some auction finance lenders charge when you settle the loan and is expressed as a percentage of the loan amount. It is also worth noting that a number lenders unlike Shawbrook don’t charge interest by the day but on a monthly basis. This means if you settle a loan on day one of the start of a month, you pay one month’s interest and not one day’s. The difference can be thousands of pounds.

To avoid the potential industry landmines including introductory interest rates, hidden rises and hefty exit fees, hiring the right advisor can help you relax. We can also work with you to ensure that alongside efficient finance, a speedy lawyer is not something that is overlooked.

When any property is being sold at auction, the vendor’s solicitor puts together a legal pack consisting of the legal documents associated with the sale, for example, the title deeds, special conditions of sale, land registry search, leases (if applicable) and other pertinent documents.

Your solicitor should view this pack before the auction to ensure you will gain good title to the property and that the title is suitable for a lender to provide a loan on. If a lender cannot get good security over a property because of some defect or issues with the title, then you will lose your deposit if you cannot complete on the purchase.

If you can provide security over another property that you already own, then it might be possible to raise a loan on that property to allow the auction purchase to take place. Your solicitor can then work on correcting any issues with the title before re-mortgaging the properties. However this is not a substitute for your solicitor reviewing the legal pack before you bid.

The key message here that being ‘auction ready’ requires careful warm up, don’t risk getting caught on race day, whatever field you are in, things always run smoother when you listen to the experts.

Disclaimer: you should always seek professional advice from a financial adviser/mortgage broker before proceeding with any loan or mortgage application.

Contact David at Advocate Finance Ltd, who are Commercial Finance Brokers, www.advocatefinance.co.uk tel: 01206 544333