Bridging Introducer

Donna Wells, Director at F4B

All businesses, especially those who are predominantly consumer facing, have faced their fair share of challenges during the pandemic. Technology has enabled various sectors to evolve over this period and various firms have had to be more innovative than ever when engaging with their customer base through a variety of mediums. This is also evident across the property market. We have seen record levels of purchase activity even through some lingering restrictions and lockdowns, which in itself is quite remarkable. Online viewings have played a major role in overcoming some of these physical barriers and this interactive experience may well continue to be an attractive option for a growing number of buyers.

Property auctions have also had to adapt over the past 12 to 18 months. In times gone by, I imagine some property auctions taking place in dark, smoke-filled rooms with some clandestine bidding wars taking place, funded by some questionable means. Then again, I may just have an overactive imagination. Thankfully, we are now operating within a far more professional, robust and responsible time when it comes to the financing of such acquisitions.

Traditional and Modern Methods of Auction

Staying with the purchase and funding element of a traditional auction, an exchange of contracts takes place as soon as the auction ends. The buyer is required to pay a 10% deposit at the point of exchange and must complete within 14-28 days.

This is not the only form of auction process. The modern method of auction has been adopted by auction houses and estate agents across the UK. This offers the speed, transparency, and security of a traditional auction but with an extended completion timeline of within 56 days. Upon the acceptance of an offer or at the close of the auction, the successful buyer must place a non-refundable reservation fee to the agents to reserve the property. Following acceptance of the offer and payment of the reservation fee, the buyer is given 28 days to exchange and then a further 28 days to complete. It is a process which does allow the buyer additional time to arrange finance to complete the exchange and completion, but a fixed timeline does remain which can often cause issues when arranging any funding and from a legal perspective.

The rise in property auctions

There is reported to have been an exponential rise in demand for property auctions, driven by increasing consumer confidence and desire for alternative buying solutions that deliver speed, security, and results. To help illustrate this, auctioneer iamsold recently reported a record-breaking number of bids so far this year, indicating a growing appetite for auction properties from buyers.

According to the firm, more than 22,000 bids were placed between January and the end of May, which is up by 205% on the same period last year and a 146% rise compared to the same period in 2019. The upward shift in competitive bidding is also driving up sale prices, with over 48% of properties selling above their reserve price in May. Mirroring the rise in buyer interest, online auction sales are also on the up, with 2,159 properties already sold so far this year raising £345m in capital value for sellers. In addition, Auction House, has announced its highest-ever monthly sales total, with 397 properties selling during May achieving a success rate of 85.2% and raising £70,309,251. According to the group, lots sold so far this year are 1,395 from 1,709 offered, at a success rate of 81.6%, raising a total of £221,674,003.

The role of the packager

Auctions can be a great place for homeowners and investors to snap up a bargain. However, whether it’s through a traditional or modern process, it’s vital for buyers to undertake due diligence on the property they are looking to purchase and how they are looking to fund it.

With many mainstream lenders unable, or unwilling, to accommodate such tight timelines, bridging finance has often proved to be the perfect solution for borrowers who have gone down the auction route in the past. Even though timelines are being extended through modern auction methods, additional market complexity and lending restrictions mean that 56 days can still prove to be an extremely short timeframe.

Short-term finance is certainly not the ideal route for all property purchase, however, this type of finance can often prove to be a valuable option to stop purchasers from losing the property or deposit. And a good packager with strong specialist expertise in this sector can play a hugely important role in sourcing the right funding terms from the right lender when speed really is of the essence.