February 19, 2024

If you’re looking to buy a property at auction, you may need auction property finance to complete the transaction quickly.

Property auctions are a popular option for individuals, landlords and developers looking to purchase a property at a bargain price. Whether to acquire the land to build upon or to renovate and rent out or sell on, buyers and investors often need auction finance to secure the property they want to buy at auction.

But, what is auction property finance, how does it work, and why is it necessary? In this guide, we explain everything you need to know about financing an auction property.

What is auction property finance?

Auction property finance, or auction bridging finance, is a short-term loan designed for people looking to buy land, residential property or commercial property at auction. It’s a specialist type of short-term finance that can be arranged fast and enable buyers to complete purchases very quickly, typically within 28 days of the auction date.

Property auctions allow individuals, landlords and developers to snap up property at a discount, and auction property finance gives buyers the ability to take advantage of discounted investment opportunities.

Although you can get a mortgage on some auction properties, it’s not usually the appropriate way to finance a property purchase at auction as they take such a long time to complete. Also, many of the properties on offer at auction are uninhabitable, making them unsuitable for a mortgage. 

Buying a property at auction with auction finance will not be the best solution for everyone, but it will be an attractive option for buyers who want to move quickly and don’t have the cash available to pay for the property within the set timeframe.

How does auction property finance work?

Like a typical bridging loan, auction property finance is a short-term finance solution offered on an interest-only basis. One of the main benefits of property finance for auctions is the fast delivery of funds to ensure you can access the money as quickly as possible, often within days or a week. Lenders move fast to allow you to secure finance before or during the auction so you can bid with confidence.

The lender will want to see a clear exit strategy from you before agreeing to finance for auction property. An exit strategy is how you intend to repay the loan at the end of the term, which might be by selling the property or refinancing the loan with a mortgage. Auction property finance is most often secured as a first charge against the property you wish to purchase at auction.

You usually have between 1 and 24 months to repay the loan, but term lengths for auction finance depend on the lender and can be shorter or longer. If you win the auction, you need to put down a non-refundable 10% deposit and pay the remaining 90% within 28 days through your solicitor. You may also have to pay additional fees to the auction house. It’s worth noting that you will need to have building insurance in place and details of your insurance provider when paying your deposit on the day of the auction. 

If you can afford a larger deposit, you’ll probably end up paying a lower interest rate. The interest rate tends to be higher than standard mortgages and depends on several factors, including the lender you choose, the loan to value (LTV), the loan amount, the property you want to purchase and its location, and your credit history.

Why is auction finance necessary?

If your bid is successful at auction, you need to have the money ready to pay a minimum 10% deposit on the day. Full payment is usually due within 28-days, meaning there’s only a short timeframe to complete your auction purchase. Unlike a mortgage and traditional long-term finance, auction finance can meet these short turnaround deadlines.

Auction finance is available for all types of borrowers and helps take the stress out of funding the purchase of auction properties, such as:

  • Residential properties
  • Commercial properties
  • Mixed-use properties
  • HMOs – houses in multiple occupation
  • Land
  • Development sites

With auction finance, you can fill a short-term gap between the long-term finance arrangement and auction day. And as you can source auction finance ahead of the auction with minimum fuss, you can walk into the auction room and bid with confidence knowing that you have the funds to back you up.

One of the many benefits of auction finance is that it can help you purchase uninhabitable properties that mortgage lenders and mainstream banks won’t touch. That means you can use auction finance to buy a property that requires extensive renovation and then refurbish it into a habitable condition or convert it to rent out or sell for a profit.

Should I compare auction property finance lenders?

Yes, you absolutely should compare property auction finance lenders to find a deal that suits your situation. Only specialist lenders can offer auction finance and usually fund up to 75% LTV, but some will allow you to secure up to 100% of the auction property purchase price.

One of the quickest and easiest ways to compare auction finance lenders is to use the Provide Finance platform that instantly matches you with lenders. Our unique online platform not only saves you time sifting through auction finance products but it matches your requirements with multiple lenders to help you find the best deal available. 

It’s a quick, simple and transparent process. You just submit a loan enquiry using the built-in form and wait seconds to receive your results. What’s more, you can chat directly with auction finance lenders and get the terms in place to process your loan directly via the Provide Finance platform. Are you ready to find your funding? You can sign up now and get started for free. If you have questions or need industry-leading advice from our team, please don’t hesitate to call us on 0800 7723 180 or use our live online chat service.

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