Although savvy investors can get a great bargain when buying property at an auction, it is important to be aware of all the additional fees involved with researching and completing on the new home or flat. By understanding the extra costs, you can get a better idea of what you can afford and set your bid accordingly. Plus, you can calculate how much return on investment you can expect if you wish to sell the property again or rent it out to tenants.
The auction house will typically take an administration fee for running the event and for processing the relevant information and documentation over to you. The admin costs will vary, depending on the auctioneers, with some starting at £200 and charging as much as £1,000.
The vendor costs refer to the commission to the estate agent or broker for selling the property. Whether the estate has come directly from the seller or because the place was repossessed, the vendor will take a commission with some charging 2.7% of the entire property sale.
Legal fees and valuation
Once you have bought the property, you will require the help of a solicitor to help to complete the necessary paperwork and this can cost around £1,000. Your solicitor will also check for any hidden clauses and loopholes so it is worth having them involved even before the bidding. You will need to have a property valuation so you can purchase a homebuyer’s report for around £400 to £600 and this will include a more in-depth structural survey by a professional. (Source: MoneyAdviceService)
Stamp duty is the tax levied on buying a new residential property and is compulsory by law. The higher the value of the property, the higher percentage you are required to pay. This fee is not included in the asking price provided in your catalogue so it is essential to consider this on top of your bid:
Property or lease premium or transfer value SDLT Rate
Up to £125,000 Zero
The next £125,000 (the portion from £125,001 to £250,000) 2%
The next £675,000 (the portion from £250,001 to £925,000) 5%
The next £575,000 (the portion from £925,001 to £1.5 million) 10%
The remaining amount (the portion above £1.5 million) 12%
Upon signing the contract, you will be responsible for insuring the property. Buildings insurance is necessary to protect the fixtures, fittings and structure of the building from the likes of fire, flood, vandalism and theft – which is a risk if the property remains unoccupied. Also, if you are planning to have work done to the property, there is always the possibility that a neighbour or passerby could be injured or suffers damages from any scaffolding or loose building works falling from the roof. The ABI quotes the average cost of building insurance is £230 per year.
You can also protect the contents inside your property such as white goods and electronics however, this may not be an issue if the property is empty but will be necessary if you decide to have tenants. The ABI costs this at an average of £124 per year.
Example costs for a property worth £500,000
£500 administration fees
£10,000 vendor fees (based on 2%)
£1,000 legal fees
£500 valuation fees
£25,000 stamp duty (based on 5%)
£354 buildings and content insurance
How we can help
At BridgingLoanHub, we appreciate how much money is required when purchasing a new property at auction. Not only are you required to pay your 10% on the day, you have to provide the other 90% within 28 days which can be a very short time frame.
Our auction finance loans are designed to help you get the short-term finance you need. Rather than go through a long mortgage process, we work with a number of reputable lenders who can help find the right finance for your purpose. Assuming we are happy with everything, you can receive a loan of up to £25,000,000 within two weeks. Simply contact us for to make an enquiry today.