Buying property at auction offers exciting possibilities – from finding your next home at a great price to snapping up promising investment opportunities.
But winning the bid is just the first step, you then need to finance your auction property purchase.
You’ll need to pay a 10% cash deposit right away and settle the full balance within 28 days. This puts mortgage finance out of reach for most auction purchases, as they simply take too long to arrange.
That’s where specialist auction finance comes in.
In this guide, we’ll walk you through the different types of auction finance available, who can use them, and how to apply. You’ll learn what lenders look for, what documentation you’ll need, and how to improve your chances of approval.
Understanding Auction Property Finance
When you’ve won a property at auction, the clock starts ticking immediately.
You’ll sign legal contracts and pay your 10% deposit the same day, and unlike regular property purchases, you can’t back out if your finance falls through.
Most auction houses require you to pay the remaining 90% within 28 days – and if you miss this deadline, you’ll lose both your deposit and the property.
Let’s say you spot a three-bedroom house listed at auction with a guide price of £200,000. You do your research, attend viewings, and end up placing the winning bid at £220,000. Right there in the auction house, you’ll need to hand over £22,000 as your deposit.
You then have just four weeks to arrange the remaining £198,000 and complete on the deal.
Auction properties come in all shapes and sizes, from residential homes to commercial buildings, plots of land, and even mixed-use developments.
Many need renovation work or have unusual features that make them less suitable for standard mortgages. Some might lack basic amenities like bathrooms or kitchens, while others could have structural issues that need addressing.
This is why specialist auction finance exists – it’s designed to work within these tight deadlines and unique property circumstances, giving you the flexibility to complete your purchase on time.
Are mortgages suitable?
It is certainly possible to use a mortgage when buying at auction.
This could be:
- First time buyer mortgage
- Residential mortgage
- Buy to let mortgage
- Commercial mortgage
The problem that buyers must overcome is:
- The length of time it takes to get these approved and ready
- The property must be habitable and ready to be used
If you’re organised and have a very good solicitor, using a mortgage is a possibility. But this will only work where the property style and condition is acceptable to the lender.
Related reading: How Do Bridging Loans Compare To Mortgages?
Types of Finance Available
Let’s look at your main options for financing an auction property purchase. Each type of finance suits different situations and property types.
Residential Mortgages
While a standard residential mortgage might be your end goal, they’re rarely fast enough for auction purchases.
You basically need everything approved and ready to go, before auction day. This is quite difficult to achieve and any hiccup could cause you a big problem.
Buy-to-Let Mortgages
If you’re buying an investment property, a buy-to-let mortgage could work for your long-term finance. Like residential mortgages, they’re usually too slow for the initial auction purchase, but many do use them.
Lots of landlords like to use bridging finance first, then move to a buy-to-let mortgage once they’ve done any necessary improvements and started marketing.
Bridging Loans
Bridging loans are the most popular, and safer, choice for auction purchases.
These short-term loans last 3-24 months and can be arranged really quickly. You’ll need a clear exit strategy – usually either selling the property or refinancing to a mortgage. They work well for properties needing renovation as the property does not need to be habitable.
Commercial Bridging Loans
When you’re buying commercial property at auction, commercial bridging loans offer quick completion times and flexibility.
They cover shops, offices, industrial units, and mixed-use properties. Lenders look at factors like potential rental income and your business plans rather than just personal income.
Second Charge Bridging Loans
Own another property? You might raise auction funds through a second charge bridging loan.
This uses your existing property as security, letting you borrow against its equity. It can work well if you don’t have a large cash deposit, for speed, or if you want to keep your existing mortgage in place.
Commercial Mortgages
For long-term commercial property ownership, a commercial mortgage provides stable funding.
Like all mortgages, they’re not really suitable for the initial auction purchase. Many buyers use commercial bridging finance initially, then switch to a commercial mortgage once they’ve established their business or secured tenants.
Your choice depends on your property type, plans, and circumstances. Getting advice from a broker will help you find the right combination of short and long-term finance for your auction purchase.
Who Can Use Auction Bridging Finance?
Auction finance isn’t just for seasoned property professionals.
While your circumstances affect which options you can access, there’s usually a solution available if you meet the basic lending requirements.
Property investors often use auction finance to grow their portfolios.
Take Sarah, who started with one rental property and now owns five – she uses auction bridging finance to buy properties that need work, fix them up, then either sells them on or adds them to her rental portfolio.
Business owners find auction finance helpful when buying premises.
A local café owner recently used it to buy a larger property down the street when his lease was ending. The quick completion time meant he could plan his move without worrying about losing the opportunity.
Even first-time buyers can use auction finance, though you’ll need a convincing plan for either selling the property or switching to a regular mortgage.
One young couple recently bought their first home at auction using bridging finance, then moved to a standard mortgage once they’d installed the kitchen and bathroom.
Landlords particularly like auction finance’s flexibility.
Whether you’re adding to your portfolio or buying a property that needs work before it can be let, you can secure the purchase quickly and arrange longer-term finance once the property meets lending requirements.
The key isn’t so much who you are, but whether you have a clear plan for the property and enough security – usually either a cash deposit or equity in another property – to satisfy the lender.
Let’s talk bridging loans!
How to apply
Getting auction finance requires careful planning and quick action. Understanding the process helps you move smoothly from finding a property to completing your purchase.
Before the Auction
Start by getting your finances in order well before auction day.
Reach out to brokers to secure an agreement in principle – this gives you a clear idea of how much you can borrow and what it might cost.
You’ll need to do your homework on any properties you’re interested in. Get a copy of the legal pack, arrange viewings, and have a surveyor check the property.
If you win the auction you will effectively be exchanging contracts to buy the same day. So your solicitor needs to have completed all of their legal work beforehand.
During the Auction
Keep your maximum bid in mind and stick to it.
Remember, when the hammer falls, you’ll need your 10% deposit ready to go. Auction houses accept debit cards or request that the funds are transferred immediately, so have your payment method sorted beforehand.
After Winning a Bid
You’ve now exchanged contracts.
You will need to update your lender and they will want to have a valuer visit the property. Your solicitor should have completed all of their property related checks, and will now be liaising with the other party.
You normally only have 28 days from auction day to come up with the rest of the money and achieve legal completion.
Key Requirements
Securing short term bridging finance comes down to more than just having a deposit. Lenders want to see you’ve thought through your purchase and have a clear plan.
Deposit
Your deposit might come from savings, equity in another property, or even from investors.
Most lenders ask for at least 25% of the purchase price, though some will consider less if you have other assets to offer as security. You might own another property outright, for example, which could be used alongside your auction property to secure the loan.
Read more: Do You Need a Deposit for a Bridging Loan?
Exit strategy
Your exit strategy – how you’ll pay back the loan – needs to be detailed and well thought out.
Let’s look at a real example: A buyer recently purchased a run-down three-bedroom house at auction. Their exit strategy showed they’d renovate within four months, then either sell it (with comparables from similar properties in the area) or refinance with a buy-to-let mortgage (with evidence of local rental demand).
Read more: How Do You Pay Back a Short-Term Bridging Loan?
Documents
You’ll need to provide documentation to support your application.
This usually includes:
- Proof of ID and address
- Bank statements showing your deposit
- Details of the property you’re buying
- Evidence supporting your exit strategy
- Information about any properties you’re using as security
If you’re planning to renovate, lenders might want to see a schedule of works with costs. For a refinance exit, you might need an agreement in principle from your future mortgage lender. And if you’re planning to sell, you’ll need to show evidence of similar property values in the area.
Remember, lenders place a lot of weight on how you will be paying them back. They’ll be looking for details, research and some evidence that you have considered potential problems along the way.
Working with a Broker
Finding the right auction finance becomes much simpler with a specialist broker by your side.
They’ve built relationships with a wide range of lenders and know exactly who to approach for different situations.
Consider a recent case where a buyer wanted to purchase a property but did not have any proof of income. High street lenders wouldn’t touch this sort of situation.
But their broker knew several specialist lenders who were happy to work on a non-status basis. Within hours, they’d secured terms that worked for the buyer’s plans and budget.
Brokers also understand how auction purchases work – they know which lenders can move quickly enough to meet those tight 28-day deadlines.
They’ll handle the paperwork, chase valuations, and keep everyone moving towards completion. This means you can focus on planning your purchase rather than wrestling with loan applications.
Many auction purchases have unique challenges. You might be buying an unusual property, need a higher loan amount, or have a complex exit strategy. A broker will package your application to highlight its strengths and address any potential concerns before they become issues.
They’ll often spot opportunities you might miss, like lenders who’ll consider a lower deposit if you have other assets.
Plus, brokers work with auction finance daily – they know current market rates and will secure better terms than you’d find on your own.
Common Misconceptions
Let’s clear up some common myths about auction finance.
First, you don’t need to be a cash buyer to purchase at auction. While you’ll need a cash deposit, auction finance can provide the rest of the funds you need.
You also don’t need to be an experienced landlord or property investor. Bridging loans are available to all, including first time buyers.
Your credit score doesn’t matter that much for bridging loans. Lenders care more about the property’s status and your exit strategy. They’ll look at the overall deal rather than focusing solely on your credit history.
Many people believe auction properties must be in poor condition or unmortgageable. While some are, plenty of well-maintained homes, commercial properties, and development opportunities come up at auction.
Auction finance works well for all these property types.
Next Steps
Ready to explore auction property purchases?
Start by researching upcoming auctions in your area and requesting information. This gives you time to understand what’s available and current market prices.
While you’re looking at properties, begin conversations with finance brokers who specialise in auction purchases. They’ll help you understand how much you could borrow and which type of finance suits your plans best.
Make sure you read the legal packs for any properties you’re interested in and keep your solicitor updated.
Remember to view properties where possible and get surveys done if you can. The more homework you do before bidding, the better positioned you’ll be to make your auction purchase a success.
Don’t leave arranging the finance until after auction day.
While it is certainly possible to get a bridging loan approved in a matter of days, it will be incredibly stressful and is likely to cost more.
Give your broker enough time to find you a really good deal.
FAQ
With the right documentation, auction finance can be approved within 2-7 days. Your broker will need property details, proof of deposit, and a clear exit strategy. The actual funds can usually be released within 2 weeks.
Read more: How Quickly Can You Get a Bridging Loan?
You’ll need to pay a 10% cash deposit on auction day. But this doesn’t have to be cash savings. It could come from equity in another property or other assets. Overall you will usually require a 25-30% deposit.
Read more: Do You Need a Deposit for a Bridging Loan?
Yes, first-time buyers can secure auction finance. The key requirements are having a sufficient deposit and a clear exit strategy, such as refinancing to a standard mortgage once any necessary renovations are complete.
You’ll lose your 10% deposit and may face additional penalties from the auction house. That’s why having finance arranged before bidding is so essential.
Yes, auction finance works for commercial properties. Lenders will assess the property’s value and your exit strategy, which might include selling, refinancing to a commercial mortgage, or using business income to repay the loan.
Yes, auction finance is available for land purchases. Rates and terms may vary depending on whether the land has planning permission and your intended use for it.
Most lenders offer up to 75% of the property’s value, though some may go higher with additional security. Loan amounts typically range from £50,000 to £10 million.
Yes, auction finance often works for properties that standard mortgages won’t cover, such as those without kitchens or bathrooms, or those needing major renovation.
Terms typically range from 3-24 months. Some lenders offer up to 36 months for specific projects, particularly commercial or development properties.
Read more: How long can you have a bridging loan for?
No, auction properties aren’t cash only.
While you’ll need a 10% deposit on the day, you have several options for funding the rest of your purchase. These include bridging loans, auction finance, and in some cases, specialist mortgages.
What’s most important is having your finance lined up before you bid, as you’ll need to complete the purchase within 28 days of the auction. Many successful auction buyers use short-term finance to secure the property, then switch to a standard mortgage later.
The 6-month rule affects buyers who want to remortgage a property within six months of purchase. Most mainstream mortgage lenders won’t consider applications until you’ve owned a property for 6-12 months.
However, there are ways around this:
- Some specialist lenders ignore the rule and will consider early remortgaging
- You can extend your auction finance term if needed
- Bridge-to-let products combine short-term finance with a pre-approved mortgage
- If you’re planning major renovations, some lenders will consider remortgaging sooner based on the improved value
Your best approach depends on your plans for the property. If you intend to remortgage quickly, discuss this with your broker early so they can find lenders who’ll work with your timeline.
Read more: The 6 month mortgage rule explained
If you find yourself needing more time to repay your bridging loan, you have several options:
Extension on current loan
Your first step should be talking to your lender about extending the term. Many will consider this if you’ve kept up with interest payments and can explain the delay. You’ll need to show progress towards your exit strategy, whether that’s property improvements or sales marketing.
Refinance to a new bridge
If your current lender won’t extend, you might refinance with a new bridging loan. This could give you extra time and might even offer better rates, especially if you’ve increased the property’s value through improvements.
Switch to longer-term finance
If your property is now mortgageable, you could pay off the bridge loan using a standard mortgage. This works well if you’ve completed renovations and the property meets lending criteria. For investment properties, switching to a buy-to-let mortgage is another option.
Remember to contact your lender as soon as you realise you might need more time. Waiting until the last minute limits your options and could damage your relationship with the lender.
Yes, you can buy auction property through an SPV, and many investors choose this route.
Here’s what you need to know:
SPV bridging loans are readily available from most auction finance lenders. You’ll need a UK-registered limited company set up specifically for property investment.
Most lenders are happy for the company to be newly formed with no trading history.
The process works similarly to personal borrowing, but with a few key differences:
- Personal guarantees are usually required from company directors
- Your SPV will need its own bank account
- The company needs to be registered at Companies House before applying
- Rates might be slightly higher than personal borrowing
- You’ll need more documentation, like company registration details
Most lenders are comfortable with SPV structures as they’re common in property investment. Some even prefer it, especially for larger portfolios or commercial properties.