Property auction finance
Auction finance is a specialised type of bridging loan designed to help buyers complete their property purchases within the typical 28-day window required by most auction houses.
Unlike traditional mortgages, which can take months to arrange, auction finance can be secured much more rapidly, allowing you to capitalise on lucrative opportunities as they arise.
Our team of specialist mortgage brokers understands the intricacies of the auction process and will guide you every step of the way.
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Bridging
What is Auction Finance?
Auction finance is a type of bridging loan.
These are short-term loans that allow you to purchase almost any type of property at auction. They are flexible and can be arranged fast.
It acts as a bridge between winning your bid and securing longer-term financing, like a traditional mortgage or perhaps flipping the property.
The fast-paced nature of auctions demands quick access to funds, and that’s where auction bridging finance excels, offering the speed and flexibility that traditional mortgages often can’t match.
What can a bridging loan be used for?
Why Choose Auction Finance?
Most people choose auction finance because its speed and flexibility matches the requirements of a property auction.
Act Fast
Auctions are competitive. With auction finance, you can secure funds in as little as 7-10 days, ensuring you’re ready to seize the opportunity when it arises.
Versatility
Auction bridging finance isn’t limited to residential properties. It can be used to purchase a wide range of assets, including commercial and semi-commercial properties, land, and even properties in need of renovation. Loans are available on a first charge or second charge basis.
Potential for Bargains
Auctions often present opportunities to secure properties below market value, providing a significant advantage for savvy investors.
Flexibility
Auction finance lenders are a lot more open-minded than traditional mortgage providers, considering applicants with less-than-perfect credit or those who are self-employed.
explore fast bridging loansBetween April-June 2024, 14% of bridging loans were used to buy a property at auction.
How Does Auction Finance Work?
The auction finance process is designed to be swift and efficient, ensuring you have the funds ready when you need them.
Here’s a breakdown of the typical steps involved:
Initial Enquiry
You’ll start by contacting us to discuss your auction finance needs.
Our brokers will gather information about the property you’re interested in, your financial situation, and your exit strategy. This helps us assess your eligibility and recommend suitable lenders.
Agreement in Principle
Once we have a clear understanding of your requirements, we’ll approach lenders on your behalf to secure an Agreement in Principle (AIP).
This is a conditional offer that indicates how much you could potentially borrow, subject to further checks.
Winning Bid and Deposit Payment
Armed with your AIP, you can confidently bid at the auction.
If successful, you’ll normally need to pay a cash deposit of 10% of the purchase price on the day.
Completion
The final stage involves completing the purchase within the auction’s time frame, usually 28 days.
The auction finance lender will provide the borrowed funds, allowing you to finalise the transaction.
Loan Repayment
You’ll then repay the loan according to your agreed-upon exit strategy, which could involve refinancing with a traditional mortgage, selling the property, or utilising other assets.
The accrued loan interest is also paid at this point.
Bridge to Let Finance
If you’re planning on buying an investment property that needs renovating then perhaps bridge to let finance could be useful.
It’s a product that combines a short-term auction bridging loan with a long-term mortgage:
Short-term bridging loan
Used for the initial purchase of an investment property where a long-term lender would refuse to lend due to the condition. This allows you to buy the property at auction, with time to refurb it.
Long-term mortgage
When the property is finished, and ready for letting, the buy to let mortgage kicks in and repays the bridge.
explore bridge to let financeEligibility
While auction finance offers a huge amount of flexibility, lenders still need to assess your financial situation and the viability of your purchase.
Here are the key factors they consider:
Deposit or Equity
With a 75% LTV bridging loan you’ll need a deposit of at least 25% of the purchase price.
Or you can leverage equity in another property you own. The more you can put down, the stronger your application is, with the possibility of securing improved terms. In certain circumstances some lenders will be able to offer 80% as a bridge loan.
Exit Strategy
Lenders need to understand how you plan to repay the loan. Common exit strategies include refinancing with a traditional mortgage, selling the property, or using funds from another source. A clear and realistic exit plan is crucial for approval.
Read more: Bridging loan exit strategies: What makes a good one?
Credit History
While a good credit history is beneficial, auction finance lenders are often more understanding of past credit issues, and many don’t use credit checks. They’ll focus on your current financial stability, the property itself and the strength of your exit strategy.
Remember, each lender has its own specific criteria, and our team are here to help you find the ones that best suit your circumstances. Don’t let concerns about your credit history or lack of a large deposit deter you from exploring auction finance. We’ll work with you to present your case in the best possible light and increase your chances of approval.
Costs and Fees
The cost of auction finance will vary depending on the lender, the loan amount, and the specific terms of your agreement.
However, you can typically expect the following costs:
Interest Rates: Interest rates for auction finance are charged monthly and can range from 0.50% to 1.25% per month. Many lenders allow you to to roll up the interest, meaning it’s added to the loan balance and paid at the end of the term.
Arrangement Fees: Lenders charge an arrangement fee of 2% of the loan amount. This fee is usually payable upon completion and can sometimes be added to the loan itself.
Valuation Fees: While some lenders offer automated valuations at no cost, others may require a physical valuation by a chartered surveyor, which will incur a fee.
Legal Fees: You’ll need to cover legal fees for both your own solicitor and the lender’s solicitor.
Exit Fees: Although becoming less common, some lenders may still charge an exit fee when you repay the loan early.
It’s important to remember that these are just potential costs, and the actual fees you’ll pay will depend on your specific circumstances and the lender/deal you choose.
Auction Finance Tips
The world of property auctions moves quickly, and securing finance can feel like a race against time. Here are some top tips to help you stay ahead of the curve:
- Do your homework: Thoroughly research the property you’re interested in, its condition, potential value, and any necessary repairs or renovations. Familiarise yourself with the auction process.
- Get pre-approved: Secure an Agreement in Principle (AIP) before the auction to demonstrate your financial readiness and give you confidence when bidding.
- Have a clear exit strategy: Lenders must know how you will repay the loan. Whether it’s through refinancing, selling the property, or another method, having a well-defined exit strategy is essential for approval.
Partner with an expert
Trying to arrange auction bridging loans yourself can be challenging. Many lenders just aren’t geared up to deal direct with borrowers.
Working with an experienced and specialist finance broker will streamline the process, help you secure the best rates, and ensure you’re fully prepared for auction day.
Our specialist brokers understand the unique challenges and opportunities of the property auction market. Yes they can arrange the finance; but they will also guide you through the entire process, ensuring you have the confidence and support to secure your winning bid.
Don’t let the fast-paced auction market leave you behind.
Property auctions
Understanding the Auction Process
Property auctions offer unique opportunities for buyers to acquire real estate.
The process involves specific terminology, various property types, important legal considerations and a finite time-frame.
Key Auction Terms
The ‘legal pack’ contains vital information about the property, including title deeds and searches. You and your solicitor must review this thoroughly before bidding.
‘Completion’ refers to the finalisation of the purchase, typically occurring 28 days after the auction. The ‘deposit’ is usually 10% of the purchase price, payable immediately upon winning the bid.
A ‘winning bid’ secures your right to purchase the property. Be aware that this is legally binding, as you will be exchanging contracts to purchase.
So ensure you have (the right) finances in place before bidding.
Auction Process
Before the auction, thoroughly research the properties you’re interested in. Review the legal pack, arrange viewings, and consider getting a survey done.
Decide on your maximum bid beforehand. Auctions can be exciting, and it’s easy to get carried away. Setting a limit helps you stay in control and avoid overpaying.
Unless you’re a cash buyer, ensure you have your finances in place before the auction. Auction finance, a type of fast bridging loan, will help you meet the tight completion deadlines.
On auction day, be prepared to act decisively. If you’re the winning bidder, you’ll need to pay a 10% cash deposit immediately.
You’ll have a set timeframe, usually 28 days, to hand over the balance and complete the purchase.
Types of Property at Auction
Auctions feature a diverse range of properties and it’s a convenient place for owners to offload the weird and (not so) wonderful!
You might find residential homes, flats, commercial buildings, or land plots. Some properties may be in excellent condition, while others require renovation or could be unfit to live in.
Repossessed properties will often appear at auctions, potentially offering bargains. However, these may come with additional risks and complexities.
Investment properties, such as buy-to-let flats or houses with development potential, are also common. Always research the local market to understand the property’s value and potential.
Luckily the bridging lender doesn’t really care too much about what you’re being or the state it’s in. They are well known for considering almost any type of property as security.
The Role of a Solicitor
You need to have a suitable solicitor in place well before auction day and one that is experienced in auction property transactions. They’ll review the legal pack, highlighting any potential issues before you bid.
Your solicitor will conduct necessary searches and enquiries, ensuring there are no hidden problems with the property. They’ll also handle the completion process, managing the transfer of funds and ownership.
Post-auction, your solicitor will liaise with the seller’s representatives to finalise the purchase. They’ll ensure all legal requirements are met within the tight timescales typical of auction purchases.
Funding The Unconventional
The auction market isn’t about pristine homes and prime commercial spaces.
It’s a treasure trove of unconventional properties that, with the right vision and financing, can yield exceptional returns.
However, these unique opportunities often come with unique challenges when it comes to securing finance.
What are Unconventional Properties?
Unconventional properties can include:
Land without planning permission
Raw land with development potential can be a lucrative investment, but securing traditional financing can be tricky. A land bridging loan can be used to help finance the initial purchase phase.
Properties in need of extensive renovation
Dilapidated buildings or those requiring major structural work can deter mainstream lenders.
Unusual constructions or non-standard builds
Properties with unique architectural features or built with non-traditional materials may fall outside the scope of conventional lending criteria.
So called unmortgageable properties
These are generally either very run-down properties that can’t be lived in, or built of non-standard construction such as PRC concrete or steel framed.
While high-street banks might shy away from these properties, specialist lenders understand their potential and are often more willing to provide funding.
They take a more nuanced approach, considering factors beyond just the property’s current condition.
With any long-term mortgage, the lender needs the property to be in good condition, and habitable on legal completion.
So bridging loans can be used to initially buy the property, whether it is dilapidated or non-standard construction. You should be able to borrow around 75% LTV.
Then you can get going on the refurb or remedial work, before selling the property, or maybe remortgaging onto a longer-term arrangement if you want to keep it.
FAQ
On auction day you will need a cash deposit of 10% of the agreed purchase price. For the bridging loan itself, you’ll normally be able to borrow 75% of the purchase price, and a 25% cash deposit.
Auction finance is known for its speed, with funds often available within 5-10 days of application.
Yes you can. While a good credit history is helpful, most lenders aren’t that bothered.
The only exception is if your exit plan involves getting another longer term loan or mortgage.
Read more: Bad credit bridging loans
Auction finance can be used for a variety of property types, including residential, commercial, MUFB, HMO, repossessions, mixed-use, and land.
Yes, you’ll need a solicitor to handle the legal aspects of the purchase and ensure a smooth transaction.
Read more: Do I Need a Solicitor for a Bridging Loan?
Yes you can. Finance is available regardless of your occupation.
Related reading: Can You Get a Bridging Loan Without a Job?
Auction finance is a form of bridging loan that is secured against a specific property. If this property is, or will be, your main residence then the loan will be regulated. Otherwise they are unregulated.
Consequently, not all broker or lenders offer regulated loans.
Read more: Are bridging loans regulated by the FCA?
No, bridging loans of this type do not require any repayments, mainly as the loan is set up for short periods only.
The whole debt, plus interest and fees, is repaid in one go at the end of the term.
Read more: How Do Bridging Loan Interest Options Work?
Interest rates for bridging loans are expressed as a monthly percentage. ie 1.0% per month.
This does mean that they cost more than a ‘standard’ mortgage. However, what you get in return is flexibility, speed and the ability to borrow against almost any type of property.
No, there are some lenders that will deal with borrowers direct.
But the bridging marketplace is very competitive and there are many other banks and lenders that will only take loans via brokers and intermediaries.
Working with a specialist broker means that you get access to a huge range of deals, and end up with a loan that best suits you.
The variety of property types that come up in auctions means that the buyers are from all walks of life.
From first time buyers, to home movers, landlords, investors and developers.
Lenders are happy to accept applications:
- In your own name
- Jointly with someone else
- From partnerships and LLPs
- From companies
- From SPVs
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