How To Get Fast Property Auction Finance

02-March-2023 11:49
in Private clients
by Sam Hodgson
How To Get Fast Property Auction Finance

Property auction finance needs to be quick and efficient to keep up with the fast-paced and competitive nature of property auctions.

This is why a standard mortgage usually doesn't work for auction finance. They take too long to arrange (typically a number of months), with affordability checks based on income, credit score, your spending history and countless other factors.

So what do you do when you need to complete on your auction property purchase within 28 or 56 days? This is where an auction bridging loan comes in.

There are many advantages of buying a property on auction. It's a great way to get a bargain, and a quicker option that allows both parties to move through the property purchase quickly.

Contracts are usually signed promptly after the deal is over, and the buyer gets to see the other offers themselves, so there is a certain level of transparency that can put the buyer at ease. 

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Auction properties can go for up to 10-30% lower than market price for a variety of reasons - in some cases because the property needs significant work done, other times because the house has been possessed by the state and needs to be sold quickly. 

Because of these unique advantages, auction properties are often sought after by developers or landlords who can see potential for investment and want to 'flip' them.

If you've decided that buying a house at auction could be the right step for you, you'll need to ensure you have the right funds to outbid the competition and complete your purchase. 

Is Property Auction Finance Cash-only?

You'll be relieved to know that auction properties aren't cash-only. You can use a mortgage for an auction property, provided it doesn't have any factors that would deem it unmortgageable, such as serious structural defects, rot or no kitchen or bathroom.

The problem is that most mortgages take far too long to arrange - this is where a bridging loan comes in.

Timing plays a huge role in buying a property at auction. If your bid is successful, the sale is agreed upon once the hammer falls. This can be convenient for the seller because it speeds the process up, but it doesn't give the buyer a lot of time to produce the funds.

How soon do you have to pay for an auction property?

  • You'll need to pay a 10% deposit straight away
  • The remaining 90% is usually due within 28 days 

Having your finances in place is crucial. If you don't find the cash by the deadline, you'll lose your deposit and any money you've spent on property surveys.

In situations like this, auction finance in the form of a bridging loan can help.

Bridging loans are designed specifically for short term funding solutions like auction properties. Bridging finance has a much quicker turnaround than mortgages (sometimes in less than a week), making them perfect for financing an auction property.

Bridging loans can also be used to fund refurbishment costs on top of your property purchase.

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Why Use Property Auction Finance?

  • If you have your eye on a great auction property, there could be a multitude of reasons that you might need help funding your purchase.
  • It might not be feasible for you to spend most of your savings on an investment property, you may want to save your money for renovation costs, or you may simply not have the level of savings to purchase a property outright. 
  • In cases like these (and many more), it makes financial sense to take out a loan to aid your financial freedom and maximise your ROI. 

While it's possible to use a mortgage to fund your auction property purchase, it's important to note that traditional mortgage loans are generally not a go-to option for auction buyers for three main reasons:

  • If you apply for a mortgage before the auction date and don’t win the property you bid on, you will have wasted the application costs. 
  • If you choose to wait until after the auction when you have won a property, the application process for a standard mortgage will take too long. This means you won’t be able to secure the money in time to complete your purchase.
  • Perhaps you have no intention of living in or renting out the property but want to sell it on to make a profit. In this scenario, you simply won't need a mortgage at all.

When using a bridging loan to finance your auction property, you can borrow a similar amount to a traditional mortgage on a short term basis. 

Terms tend to be more flexible, and the money can be raised much faster than a conventional mortgage, allowing you to move forward with a house purchase within the tight timeframes of an auction.

You can then repay your bridging loan as a lump sum later down the line, usually either by:

  • getting a standard mortgage to replace it
  • or selling (flipping) the property

Find out how we helped a recent client finance an auction property when his funding collapsed at the last minute in the video below:

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How Does Property Auction Finance Work?

Short term auction bridging loans are available from specialist lenders on a monthly interest only basis. They're often used to pay for your auction property (and potentially do some refurbishments to increase its value).

  • When you make an application, you can get an offer in principle within 24 hours, and the funds could be in your bank account within 7-14 days
  • You can take out the bridging loan for up to 12 months (sometimes up to 24 months).
  • Since bridging loans are short term, interest rates are calculated on a monthly basis rather than an annual percentage rate (APR). 
  • You then repay the loan, either when you sell the property or when you refinance it through a residential or buy to let mortgage.
  • You only pay interest on a bridge loan until the day you repay it.

Use our Auction Finance Calculator

Our bridging calculator provides an approximate idea of what a bridging loan might cost you. But keep in mind that a bridging broker will be able to fine-tune your expected charges to your circumstances:

Bridging loan calculator button for Clifton Private Finance

Auction Finance Eligibility Criteria

To qualify for property auction finance, you'll need to meet two essential criteria:

  • You will need to put down at least 10-20% of the loan amount. As an alternative, you may be able to provide another asset or property as security. The more deposit you can put down, the lower the monthly interest rates you will have to pay.
  • You will need to have a solid exit strategy to repay the loan. A lender will want to know how you will repay the loan by the end of the agreed term. In most cases, this will either be through selling the property or refinancing with a traditional mortgage loan.

Before an auction finance lender approves your loan, they will want to see evidence of the value of the property you are buying; either its saleability or an agreement in principle from a mortgage lender, as proof that you have a viable exit strategy in place.

Since the loan is secured against property, the lender won't take your income into account. Equally, your credit history won't affect an offer as long as any outstanding debts or adverse credit don't impact your ability to repay the loan. However, if you do have a bad credit rating, you may have to pay higher interest rates.

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Types of property you can buy with Auction Finance

Auction finance can be used to buy many types of property, including:

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How to Apply for Auction Property Finance

When you've found a property you want to bid for, you'll put yourself in the best position to secure property auction finance by following these three simple steps:

Number 1

Get your documents in order: You'll need evidence of your deposit and exit strategy as well as a valuation report on the property you intend to buy (or other property and assets you have as security). 

Number 2

Check your credit profile: Be prepared for the lender to carry out a credit check. While bad credit is not usually a significant issue as long as your exit strategy is solid, improving your credit score and having outdated information removed could boost your chances of securing a more competitive deal. 

Number 3

Speak to a specialist auction property finance broker: Using a specialist finance broker, such as Clifton Private Finance, can give you the best chance of securing excellent terms and rates on your loan and enable you to move quickly when the time is right.

Doing this before you go to auction can help you get valuable advice on how best to approach your purchase. Not only this, but our expert knowledge in the niche and relationships with exclusive lenders can help you get the best deal on the market.

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How to Find the Best Rates on Property Auction Finance

  • If you need to find auction finance fast but still want to take advantage of the best rates available, we can help.
  • Our team of highly experienced auction finance brokers have the knowledge and experience to match your borrowing requirements and personal circumstances with the lenders offering the best deals.
  • We have a strong reputation for finding solutions where other brokers have failed, and we work hard to get you the money you need when you need it at a rate you can afford - all with exceptional service.
Our finance specialists can help you access the best deals on short term auction finance from across the market.
To find out more call us on 0117 959 5094
Or book a free and no obligation telephone consultation at a time that suits you:

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 Read our comprehensive guide to Bridging Finance


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