Auction Buyers Warned ‘Agreement in Principle’ is Not Always Enough

29 May 2012 Categories: News

Auction Buyers Warned ‘Agreement in Principle’ is Not Always Enough

A growing number of property investors that buy their acquisitions through the auction room are being let down by their funding bank because the property doesn’t meet their lending criteria. It is estimated that around 30% of investors who have so far bought auction property during 2012 have had the plug pulled at the last minute, meaning they then have to find an alternative method of financing their purchase within the normal 28 day deadline.

According to Scott Hendry, national development manager for specialist lender Auction Finance, there are several reasons that banks give when refusing to lend on an auction property – even though they have previously given an Agreement in Principle to the buyer.

“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” said Mr Hendry.

“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.”

Mr Hendry is thus warning auction buyers to read the terms of the agreement in principle before bidding on any property, or alternatively use a short-term bridging loan before applying for long term finance when renovations are complete.