Buying property at an auction is time-sensitive, often rendering conventional financial options like mortgages unsuitable.

Enter auction finance – a specialized type of loan designed to fill this need. Essentially, it’s a form of bridging loan crafted to expedite funding for property auction purchases.

This article delves into the workings of property auction finance, weighing its advantages and disadvantages.

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What is Auction Finance?

Auction finance refers to a specialized type of financing used to purchase property at auction in the UK.

When buying property at auction, the buyer is required to pay a deposit immediately after winning the bid, usually around 10% of the purchase price. The remaining balance must then be paid within a short timeframe, typically 28 days for residential properties.

This 28-day completion period makes obtaining traditional financing like mortgages challenging, as they often take longer to arrange.

Auction finance is designed to provide the funds needed to cover the remaining balance quickly so the buyer can complete the auction purchase within the required timeframe.

Auction finance is essentially a short-term bridge loan that is borrowed until longer term financing can be obtained. It is considered a type of bridging loan tailored specifically for the needs of property auction buyers.

With auction finance, funds can be made available in as little as a few days, allowing property buyers to take advantage of auction opportunities.

The loan is typically repaid after a set period of 1-18 months once the buyer secures a mortgage or other permanent financing option. Auction finance offers flexibility while meeting the tight deadlines of property auctions.

How Does Auction Finance Work?

The key steps involved in utilizing auction finance are:

Research and Planning

  • Identify properties of interest in upcoming auctions and determine your maximum bid amounts.
  • Research market values and conditions to avoid overpaying.
  • Calculate funding needs for the purchase price and costs like deposit, fees, renovations etc.
  • Explore auction finance options and speak to lenders and brokers to get pre-approved. This ensures you have financing ready when needed.

Bidding at Auction

  • Attend the auction and bid up to your pre-approved limit. Do not exceed your limit.
  • If you win, you will need to pay the deposit immediately and sign a contract committing to pay the remaining balance within 28 days.

Finalizing Auction Finance

  • Your lender will do final due diligence, like valuations and underwriting.
  • Legal work will be completed to put loan facility in place.
  • Lender will provide the funds needed to cover the remaining auction balance when it comes due.


  • You will need to repay the auction finance within the set term, usually 1-18 months.
  • Popular exit strategies include refinancing with a mortgage, sale of the property, or obtaining other permanent financing.

The speed and flexibility of auction finance make it possible to capitalize on property auction opportunities. With proper planning, it can provide an effective funding solution.

Planning and Preparation for Auction Finance

Successfully purchasing a property at auction relies heavily on upfront planning and preparation. Here are some key steps to take:

Research Upcoming Auctions – Review auction company catalogues to identify properties that match your criteria. Attend pre-auction open houses.

Set Your Budget – Factor in the purchase price, needed deposit, fees, repairs, required contingency funds, and other costs to determine your maximum bid amounts.

Arrange Financing – Speak to lenders to get pre-approved for auction finance and understand the terms. This is crucial to bidding with confidence.

Due Diligence – Inspect properties thoroughly yourself and/or via professional surveys to avoid expensive surprises later.

Review Legal Pack – Read the provided property information in detail to understand what you are bidding on.

Deposit Funds – Have 10-20% of the purchase price available for immediate deposit payment upon winning bid.

Contingency Plans – Have backup financing options in case your auction finance falls through for any reason after bidding.

Exit Strategy – Determine how you will repay auction finance based on the intended use of the property, whether flipping, renting, developing, etc.

Proper planning and preparation allow you to bid and purchase property at auction effectively using auction finance.

Eligibility and Criteria for Auction Finance

To qualify for auction finance, you need to meet certain eligibility conditions set by the lenders. Here’s a more reader-friendly overview:

  1. Who can apply? Individuals, partnerships, companies, trusts, and offshore companies are welcome.
  2. Credit History: Your credit history matters, but lenders are open to considering applicants who have had credit issues in the past, like defaults and CCJs. If you’ve had significant credit problems, getting pre-approved is wise.
  3. Property Type: A wide variety of property types, including all residential and commercial, are typically accepted as collateral. If you’re using land, it might require planning consent.
  4. Location: No matter where you are in the UK – England, Northern Ireland, Scotland, or Wales – you can apply for auction finance.
  5. Deposit: You’ll usually need to deposit at least 10-20%, depending on the lender’s loan-to-value (LTV) policy. If you can offer additional security, you might be able to negotiate a higher LTV.
  6. Exit Strategy: You’ll need a clear, achievable plan for repaying the loan, whether through refinancing, selling the property, or some other method, all within the agreed term.
  7. Affordability: Lenders will evaluate your income and existing financial commitments to assess whether you can afford the loan and to evaluate risk.

Fees & Costs of Auction Finance

When opting for auction finance, be mindful of several fees and costs involved. The table below provides a clear breakdown:

Fee/Cost TypeDetails
Arrangement FeeThis is a fee charged by the lender, typically 1-2% of the loan amount, and usually added to the loan.
Valuation FeeSolicitors charge these fees to handle loan documents and conveyancing. Both your own and the lender’s legal costs are your responsibility.
Legal FeesThis is a fee charged by the lender, typically 1-2% of the loan amount and usually added to the loan.
Broker FeeIf you’re using a broker, the fees usually range from £500 to £10,000, depending on the size of the loan.
Auction DepositThis is 10% of the purchase price and is payable immediately upon winning the bid.
Auction House FeeThe auction company charges this one-off fee, typically around 2.4% of the purchase price, based on a £500,000 property.
Interest RateLenders typically charge an interest rate of 0.43% to 0.85% per month for auction finance loans.
Exit FeeSome lenders charge this upon loan repayment, usually equivalent to around one month’s interest.

Remember to factor all these costs into your financial planning and budgeting. Make sure to thoroughly read and understand all fee-related information before agreeing to terms with a lender.

What are the typical rates?

Interest rates for auction finance loans can greatly differ. Most lenders typically charge a monthly interest rate of 0.43% – 0.85% for these loans.

However, the exact rate you’re offered will be influenced by various factors, such as your credit profile, the loan-to-value ratio, the type of property, the loan term, and the lender’s specific policies.

Generally, if you’re able to put down a substantial deposit of 40-50% or more, thereby reducing the loan-to-value ratio, you could get lower interest rates as this minimizes the risk to the lender.

Also, it’s worth noting that commercial property purchases usually attract slightly higher interest rates compared to residential property loans.

What’s the Process and Timeline?

The typical process and timeline for getting auction finance in place are:

  • 1-2 Weeks Before Auction – Research lenders, submit initial inquiries, and provide documents for pre-approval.
  • 5-7 Days Before Auction – Receive provisional offer if a lender can accommodate. Submit a formal application.
  • 2-3 Days Before Auction – Lender undertakes due diligence like valuations. Obtain final approval.
  • Auction Day – Bid up to the pre-approved amount if financing is secured. Pay a deposit if you win.
  • 2-3 Weeks After Auction – Legal work finalized, funds released by the lender, balance paid to auction house.
  • Up To 18 Months After – Repay auction finance via exit strategy like refinancing or sale.

The entire process usually completes within 3-4 weeks from initial inquiry to receipt of funds.

Having financing pre-approved before bidding is highly recommended. It’s risky to bid without guaranteed funds in place.

Stay in close contact with your lender throughout the process to ensure smooth sailing.

Alternatives to Auction Finance

While auction finance is tailor-made for the swift completion times of auction purchases, it’s essential to be aware of other financing options available. The table below presents these alternatives:

MortgagesTraditional mortgages usually offer lower rates but may not be processed quickly enough for auction timeframes.
Bridging LoansThese are designed for investors but often have a longer completion time compared to auction finance.
Buy-to-Let MortgagesThese are designed for investors, but often have a longer completion time compared to auction finance.
Commercial MortgagesSuitable for commercial property purchases, but tend to have a slower processing time.
Development LoansIntended for buyers planning construction work, but they don’t provide immediate funds.
Personal LoansThese unsecured loans may offer insufficient maximum amounts for larger properties.
Credit CardsWhile providing immediate spending ability, they have high interest rates and lower limits.

Can I get 100% Auction Finance?

In some cases it is possible to arrange finance for 100% of the property value of a given property.

In these types of cases, the lender is likely to ask for a first charge over the property being purchased plus a second charge over an existing property

Most lenders will accept multiple securities if one is not sufficient. In these cases, you should expect to pay separate valuation fees for each one.

How much Deposit do I Need for Auction Property?

Auction finance is usually available at a maximum of 75% LTV in most cases.

Where the risk for the lender increases, this is likely to drop to between 50-60% LTV, meaning the potential buyer will need a substantial deposit for the finance to be viable.

In all cases, the lender will be examining your exit strategy – how you plan to repay the bridge loan – and the risks around this will be carefully weighed up.

Tips for Succesful Auction Finance

Considering a property purchase at an auction using auction finance? Here are some guidelines to ensure a successful experience:

  1. Due Diligence is Key: Inspect the property meticulously and have a survey done to avoid unpleasant surprises. Gain comprehensive knowledge about what you’re bidding on.
  2. Get Pre-approved: Secure your financing before bidding to know your boundaries and bid with confidence. Bidding without guaranteed funds can be risky.
  3. Understand the True Costs: Take into account all expenses, such as fees, interest, repairs, and other costs, for a precise budget estimate. This helps avoid funding deficits.
  4. Develop a Solid Exit Strategy: Lenders expect well-defined plans for loan repayment within the stipulated term, usually 6-18 months. Refinancing, selling, or capital raising are popular choices.
  5. Peruse the Legal Pack: Examine all property-related legal documents thoroughly before the auction day so you fully comprehend what you’re buying.
  6. Arrange Insurance: Promptly secure building insurance after purchase to mitigate damage risks.
  7. Expect the Unexpected: Maintain a contingency fund or have a backup plan to tackle any unforeseen costs that may arise during or post the buying process.
  8. Hire an Experienced Broker: Brokers possess extensive knowledge to align you with the appropriate lender, loan, and terms that suit your needs.

By being well-prepared, diligent, and thorough, you can make your auction property purchase with finance a rewarding experience.

Frequently Asked Questions (FAQs)

How do you use Finance at Auction?

Can you get a mortgage on an auction house property?

How long does it take to get auction finance?

What proof of ID or residence is required?

What properties can auction finance be used for?

Can auction finance be used by first-time buyers?

Can auction finance be used by first-time buyers?

How much can be borrowed?

Do I need a broker?

Does auction finance work for bad credit borrowers?

What are the repayment options?