Buyers at auction warned of lenders reneging on deals
Friday 25th May 2012
Almost one third of successful bidders at residential property auctions, many of them buy-to-let investors, are subsequently being let down by their lenders and have to scramble to find other forms of finance.
An auction deal is generally binding on the fall of the gavel, putting pressures on buyers to find the money to complete within strict deadlines, often just 28 days.
But specialist lender, bridging firm Auction Finance says too many banks are pulling out of deals after property investors have made their successful bids.
Scott Hendry, national development manager at Auction Finance, said: “It’s all too common for high street banks to pull out of funding an auction transaction because of the short timescales for completion or the property has no kitchen or bathroom. Yet most people bidding at auction want the property quickly so they can renovate it to sell on or rent out at a profit.
“Sometimes bidders assume that the funding has been agreed by the bank or lender when in fact they only have an ‘agreement in principle’ which is wholly different from a real approval to borrow the amount required for the property.
“We estimate that in 2012 so far, 30% of property investors we have dealt with have had to rely on short-term finance from Auction Finance to fund their purchase because their previous lender has let them down.
“In some cases they have been able to agree long-term funding with their bank at a later date, but this process just takes too long for someone trying to secure a good investment opportunity at auction.
“A short-term bridging loan secured against other properties in a portfolio is one way to avoid being let down at the last minute.”
Auction Finance says the top five reasons why auction property deals fall over are:
1) Bank pulls out of the funding due to short timescales.
2) Bank refuses to fund because the property has no kitchen or bathroom.
3) Borrowers assume the funding has been agreed.
4) Delays in depositing the funding from the bank.
5) Last-minute revelations on the borrower’s credit check prevent funding.
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