Buying a property at auction can be an exciting but fast-paced process, often requiring quick decisions and upfront financing. Understanding how much you can afford is crucial to avoid overstretching your budget. An auction finance calculator is a powerful tool that can help you estimate the costs involved, monthly repayments, and potential short-term funding needs.
This guide will explain how auction finance calculators work, what factors to consider, and how to use them effectively to plan your next auction property purchase.
What is an Auction Finance Calculator?
Why Use an Auction Finance Calculator?
Step 1: Understanding Your Survey Results
2. Understand Interest Costs
3. Plan for Associated Costs
4. Assess Repayment Affordability
How to Use an Auction Finance Calculator
1. Input Key Details
- Purchase Price: Enter the expected auction property price.
- Deposit Amount: Indicate the deposit you can pay upfront (usually 10% of the purchase price).
- Loan Term: Select the loan duration, typically 6–12 months for bridging finance.
- Interest Rate: Input the interest rate provided by your lender or use an average market rate.
- Additional Costs: Include fees like auction house fees, legal fees, and renovation budgets for a more comprehensive estimate.
2. Review Loan-to-Value (LTV) Ratio
3. Explore Repayment Options
Choose between:
- Rolled-Up Interest: Interest is added to the loan balance and paid at the end of the term.
- Retained Interest: Interest is deducted upfront, and only the principal is repaid at the end.
Example: Auction Finance Calculator in Action
Let’s look at an example to understand how the calculator works:
Property Purchase Price: £200,000 Deposit: £20,000 (10%) Loan Term: 12 months Interest Rate: 0.75% per month Auction Fees: £3,000 Renovation Costs: £30,000
Step 1: Calculate Loan Amount
Loan Amount = Property Price – Deposit
Loan Amount = £200,000 – £20,000 = £180,000
Step 2: Calculate Monthly Interest
Monthly Interest = Loan Amount x Interest Rate
Monthly Interest = £180,000 x 0.0075 = £1,350
Step 3: Calculate Total Interest for 12 Months (Rolled-Up Interest)
Step 4: Add Additional Costs
Factors to Consider When Using an Auction Finance Calculator
- Loan-to-Value (LTV) Limits: Ensure the calculator accounts for the maximum LTV ratio offered by your lender. Properties needing extensive renovations may have lower LTVs.
- Interest Rates: Rates can vary significantly based on property type and borrower profile. Input realistic figures based on your pre-approval or lender discussions.
- Exit Strategy: Plan how you’ll repay the loan. Options include refinancing onto a long-term mortgage, selling the property, or generating rental income.
- Associated Costs
- Don’t forget to include:
- Auction fees (typically 1–3% of the purchase price).
- Legal fees for property searches and contracts.
- Surveyor costs, especially for renovation projects.
Benefits of Using an Auction Finance Calculator
Quick Estimates: Understand your budget before attending an auction.
Improved Planning: Account for all costs, from deposit to interest and fees.
Better Negotiation: Know your financial limits to avoid overbidding.
Exit Strategy Clarity: Align repayment estimates with your long-term financial goals.
Conclusion
FAQs
Ans: Some lenders offer development finance or bridging loans that include renovation costs. Ensure the calculator you use accounts for this.
Ans: Calculators provide estimates, but final loan terms depend on your lender’s assessment and the property’s valuation. Always consult your finance provider for exact figures.
