Experienced property developers and buy-to-let investors tell me that the pages of the property auction catalogues are where they find some of their best investments. Often properties which come up at auction may need more work, change of use or maybe even some imaginative and creative thinking to make them commercially viable – all of which an experienced property professional can take in their stride.
You may well be a seasoned auction property bidder who has won when the hammer’s gone down multiple times. However, as in any fast paced environment, there are ever changing rules, regulations and circumstances which you need to keep pace with and consider.
That’s why I wanted to share in this blog Auction Finance’s latest tips for property professionals in the auction house to ensure the funding process runs smoothly.
1. Check the legal pack
You may have seen legal packs hundreds of times, but each one will have differences relating to the particular property. Make sure you’ve read it carefully, especially the small print, as it’s often in these sections where surprises such as covenants, restrictions and rights of access are noted.
2. Don’t get caught out by the six month rule
Banks generally won’t lend on a property until it has been owned for six months. However, what is not as commonly known is that the vendor should also have owned it for at least six months. When buying at auction even seasoned professionals can be caught out by this, so it’s important to find out how long the vendor has had the property, otherwise it could be an issue with a high street lender.
3. Be aware of potential issues with the property
There are some issues which will immediately make funding more difficult, such as kitchens and bathrooms which are not up to scratch and can be considered unsanitary, or Japanese knotweed which can damage the property and make it very difficult to obtain finance from traditional banks. Knowing about these in advance means you can approach specialist lenders, such as Auction Finance, who are flexible when it comes to funding less standard properties.
4. Check the planning consents
If there is planning attached to a property, be careful to check when it expires. If it is due to lapse, don’t automatically assume you’ll be able to get it again. Check with the local planning department what the likelihood is of renewing.
5. HMO regulation
Many property professionals look to auctions to pick up houses of multiple occupation or HMO investments. These are growing in popularity amongst buy-to-let investors. However, you may not be aware that for larger HMOs, by law, the property has to be licensed with the local council. These licences usually have to be renewed every five years and you can be fined up to £20,000 for renting out an unlicensed HMO. Each council has different rules and regulations for these licenses so make sure you speak to the local authority for your planned property bid about what is required to avoid any nasty surprises.
6. Investigate any tenancies
Is the property you are planning to purchase tenanted? Take the time to find out some background information about both the tenant and the tenancy agreement. Regulated or life tenancies can cause issues for finance as the tenant has the right to remain throughout their lifetime and can sometimes transfer the tenancy to a child, so you need to be aware of the specifics of the agreement.
I hope you find these tips useful and don’t forget the Auction Finance team are at auction houses up and down the country every day. If you have a specific question or are looking for some advice please come and speak to one of our team and we’d be happy to help.
