Auction Finance

Buying a property at auction can be a great opportunity, but it moves much faster than a normal house purchase. You should arrange your Auction Finance first.

Once the hammer falls, you are usually legally committed to the purchase. In many traditional auctions, you may need to pay a deposit straight away and complete the purchase within around 28 days.

That short timescale can make a standard mortgage difficult, especially if the property needs work, has a short lease, has title issues, or does not meet a mainstream lender’s normal requirements.

This is where auction finance, often arranged through a bridging loan, can help.

What is auction finance?

Auction finance is short-term funding designed to help you complete quickly after buying a property at auction.

It can be used where a normal mortgage is too slow, unsuitable, or not available in time. The finance is usually secured against the property you are buying, another property you own, or sometimes both.

The key point is speed. Auction finance is designed to bridge the gap between buying the property and arranging your longer-term plan.

Why would I need auction finance?

You may need auction finance if:

• You need to complete within 28 days.
• The property is not currently mortgageable.
• The property needs refurbishment before a mortgage lender will consider it.
• You are buying below market value and need to move quickly.
• You want to secure the property before arranging longer-term finance.
• You are buying through a limited company, pension, or investment structure.
• You are buying land, a mixed-use property, or a commercial property.

Common auction property problems

Many properties sold at auction are perfectly normal homes. Others need more care before a lender will accept them.

Common issues include:

• No working kitchen or bathroom.
• Structural problems.
• Non-standard construction.
• Short leases.
• Japanese knotweed.
• Planning or building regulation issues.
• Title defects or missing legal documents.
• Properties that need refurbishment before they can be let or lived in.

A normal mortgage lender may decline these properties. A bridging lender may still consider the case if the security, valuation, and exit strategy make sense.

How does auction finance work?

The process is usually straightforward:

1. You find the auction property.
2. You speak to us before bidding.
3. We look at the guide price, your deposit, the property type, and your exit plan.
4. We approach suitable lenders.
5. If the figures work, the lender issues terms.
6. The valuation and legal work are completed quickly.
7. The loan completes in time for the auction deadline.

The most important part is preparation. It is always better to speak to us before you bid, not after the auction has ended.

Your exit strategy

Every bridging loan needs a clear exit strategy. This simply means how you plan to repay the loan.

Common exit routes include:

• Selling the property.
• Refinancing into a standard residential mortgage.
• Refinancing onto a buy-to-let mortgage.
• Using the sale proceeds from another property.
• Completing refurbishment works and then arranging longer-term finance.

The lender will want to see that the exit route is realistic. Without a clear repayment plan, auction finance may not be suitable.

Can interest be rolled up?

In many cases, yes. With bridging finance, the interest can often be added to the loan rather than paid monthly.

This can help cash flow while you complete the purchase or carry out works. However, rolled-up interest increases the final balance, so it needs to be understood from the start.

Is auction finance expensive?

Auction finance is usually more expensive than a normal mortgage because it is short-term, specialist lending and often arranged quickly.

You may need to pay:

• Lender arrangement fees.
• Valuation fees.
• Legal fees.
• Broker fees.
• Monthly interest or rolled-up interest.
• Possible exit fees, depending on the lender.

We will explain the costs clearly before you proceed, so you know what you are taking on.

Regulated and unregulated auction finance

Some auction finance is regulated by the Financial Conduct Authority, and some is not.

As a general guide, if the property will be used as your home, or by a close family member, the finance may fall under regulated mortgage rules. If the property is purely for business, investment, commercial use, or buy-to-let, it may be unregulated.

We will confirm this with you at the start, because the type of borrowing affects the advice process, paperwork, and lender options.

Speak to us before you bid

If you are thinking of buying at auction, speak to us before you place a bid.

We can look at the property, the auction deadline, your deposit, your income position, and your exit strategy. We can then tell you whether auction finance is likely to be available and what issues may need to be addressed.

Auction purchases can move quickly. Good preparation can make the difference between completing on time and losing your deposit.

Call Mortgage Solutions today to discuss auction finance and bridging loan options.