An Auction Purchase Beaten to the 28 Day Deadline

The lot

A client came to me before an auction with a house he wanted to bid on. Guide price two hundred and thirty-five thousand pounds. The plan was a straightforward value-add: buy it, put a dormer in, extend at the back under permitted development, then refinance.

He won it at two hundred and eighty-five thousand pounds. Fifty thousand over guide, with around eighty thousand pounds of works to follow.

It completed inside the twenty-eight days. It went right to the wire, and the reason it got there at all is everything that happened before he raised his hand.

Why a mortgage was never going to work

Two reasons, and either one on its own would have been enough.

The first is the timescale. At a traditional auction the hammer is the exchange of contracts, and completion follows inside the period set in the special conditions of sale. That's commonly twenty-eight days. A mainstream residential application does not move at that speed, and if it runs late you don't get an extension, you lose your ten per cent deposit and potentially more.

The second is the property itself. A house needing a dormer and a rear extension is not a house a mortgage lender wants to lend on in its current state. The works were the whole point of the purchase, and the value only existed on the other side of them.

So the finance had to do two jobs at once: complete to an auction deadline, and fund a refurbishment on a property that wasn't yet worth what it would be worth.

What we did before the auction

This is the part I'd want anyone reading this to take away, because it's the reason the deal worked.

We set his ceiling first. He told me what he was prepared to pay, we worked through the deposit he had, the cost of the works and what the finished property should be worth, and we landed on two hundred and eighty-five thousand as the maximum. Then we got indicative terms at that number, not at the guide price.

That matters more than it sounds. Terms at the guide price are useless, because you aren't going to buy it at the guide price. On this lot the guide was two hundred and thirty-five and it sold for two hundred and eighty-five. Terms at your ceiling tell you whether the deal still works at the worst price you're willing to pay.

And then he stuck to it. He bid to two hundred and eighty-five and stopped. I've had the other conversation plenty of times, where someone rings up delighted that they won at three hundred, and I have to explain that the deal we built doesn't exist at three hundred.

At the same time, we packaged the case properly. Assets and liabilities, his CV, bank statements, the schedule of works and the contractor costings. All of it sat with me finished before the auction, so that the moment he called to say he'd won, the application could go in.

How the money was structured

Two parts, which is normal for this kind of purchase.

A day one advance against the purchase price to complete the buy, and then the works funded as a drawdown facility in arrears. He wanted the full eighty thousand for the refurbishment, and he wanted as much as possible on day one.

That's where the constraints bite, and it's worth being honest about them rather than making it sound easy. Three separate tests have to be satisfied at once: the loan against the property's value on day one, the loan against the gross development value once the works are finished, and the loan against total cost. The deal has to fit all three, not just the one that happens to suit you.

Day one advances are capped well below the gross facility, and how far below depends on the deal. Anyone who tells you the day one money will be at the headline figure is doing you no favours.

Drawdown in arrears is the other bit people misunderstand. The works money is released in stages as the work is actually done, not handed over at completion. He needed to be able to fund the first stage himself and be reimbursed, and we established that before he bid rather than discovering it afterwards.

Week one

He rang me the afternoon of the auction. Because the pack was already built, the application went in the same day rather than two or three days later.

Solicitors were instructed the same day as the application, which is the step people skip. There's a tendency to instruct the broker, wait for an offer, and only then speak to a solicitor, and that habit alone can cost a week on a four week deadline.

Then the thing that decided the whole timeline: this deal needed a physical valuation. A valuer had to attend, inspect and write a report.

That is the slower of the two routes. Some lenders will work from a desktop or automated valuation and the timeline collapses to days, but that wasn't available here, so we were committed to booking an inspection and waiting for a report inside a twenty-eight day window.

Which is exactly why the two days saved at the front mattered. A physical valuation instructed on day two gets its report back with roughly twelve days left for the legal work. Instructed on day nine, and there are five days left, which isn't enough for searches, enquiries, title and completion. The valuation was the deadline, not day twenty-eight.

The result

It completed inside the twenty-eight days, with days rather than weeks to spare.

The works started, the dormer and the extension went in under permitted development, and he went on to do what he bought it to do.

What's worth saying plainly is that this was not a comfortable deal. It was a purchase fifty thousand over guide, with eighty thousand of works to fund, on a property a mortgage lender wouldn't touch, needing a physical valuation, inside twenty-eight days. Every one of those is a reason it could have failed.

It didn't fail because the work was done before the auction rather than after it.

What made the difference

• Terms were agreed at his ceiling, before the auction. Not at the guide price, and not after he'd won.
• The paperwork was finished before the hammer fell. The application went in on day one instead of day three, and with a physical valuation to fit into twenty-eight days, those two days were the margin.
• The solicitor was instructed on the same day as the lender. The legal work ran alongside the valuation rather than after it.
• He had a number and he held it. The discipline was his, not mine, and it's the reason the finance still fitted when he won.

Could this have been done faster?

Yes, and it's worth knowing how. The single biggest variable on an auction purchase is whether a physical valuation is required.

Where a lender will accept a desktop or automated valuation, the application can go in, the valuation can be agreed and the offer can follow within days. That usually means borrowing at a more conservative level against the property's value, so there's a trade-off: the highest borrowing and the fastest completion are rarely available on the same deal.

On this one he wanted a high day one advance and the full works facility, so a physical valuation came with the territory. That was the right call for his deal. It just meant the first week had no slack in it.

If you're thinking about a lot

The useful conversation happens before the auction. Send me the lot and the legal pack and I'll tell you what's possible on it, what it will cost you and how fast it can move. If the honest answer is that it doesn't work, you'll hear that while you can still walk away for nothing.

There's more on the timeline in how long you have to complete and what happens in week one, and if the lot you're looking at is being sold under the modern method, read why that isn't the easy option before you pay a reservation fee.

Ring 0330 133 4442 or book a call.