Auction finance
How to secure funding for your auction property when completion deadlines are tight.
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What is auction finance?
Auction finance is a short-term bridging loan designed to help buyers secure the funds needed when buying property at auction. It's different from traditional mortgage finance in several ways, including the speed of approval and the timeframes involved.
Auction sales typically require buyers to pay a deposit immediately after the hammer falls, with the full balance due within days. This means auction finance can often be the quickest and most suitable way to secure the money you need.
Lenders offering auction finance understand the time-sensitive nature of property auctions, which is why they can approve loans more quickly than a standard mortgage, often within 24 to 48 hours.
Key differences, how to apply, and costs
A different kind of lending
One of the main differences between auction finance and a traditional mortgage is the speed at which the funds are made available. Auction finance is a short-term loan designed for speed, usually within a matter of days.
Let's say you're attending a property auction and you spot a fantastic investment opportunity. If you were relying on a traditional mortgage, you might miss the chance due to the lengthy application process. With auction finance, the process is far quicker.
When you need to pay a deposit (usually 10% of the purchase price) right away, and the remaining amount within four weeks, auction finance gives you access to funds within this tight timeframe.
How to apply for auction finance
Applying for auction finance is relatively straightforward, but there are a few important things you'll need to consider to increase your chances of approval.
Before you apply
- Property details: Lenders will want to know about the property you're bidding on, including its market value and condition.
- Credit history: While auction finance is often more flexible than a traditional mortgage, lenders will still look at your credit history (and income) to make sure you're able to repay the loan.
- Exit strategy: This is your plan for repaying the loan. Most auction finance lenders will want to know whether you intend to refinance with a mortgage, sell the property, or pay with other funds.
Once you've gathered all the necessary information, you can approach a specialist lender who offers auction finance. Many can offer a decision in principle within 24-48 hours.
Pre-approval is key. If you've found a property at auction and have been pre-approved for auction finance, you'll know in advance that you have the necessary funds ready if you win the bid.
Understanding the costs of auction finance
While auction finance is often a great option for securing property quickly, the interest rates and fees reflect the short-term nature of the loan and the extra risk for lenders.
- Interest rates: Auction finance rates tend to be higher than standard mortgage rates, but the size of your interest payments will depend on the lender and the risk involved.
- Arrangement fees: Most lenders charge a fee for arranging the loan, which is usually a very small percentage of the loan amount.
- Exit fees: Some lenders charge fees when you repay the loan early, so it's important to check these details before committing.
Fees like these can impact the gross loan amount, so be sure to factor in the costs and make sure the purchase price matches the final net loan amount.
Despite these higher costs, auction finance is still often the most cost-effective and practical option if you need funds quickly to secure a property. The key is to make sure you have a clear exit strategy in place, so you can repay the loan within the timescale and avoid accumulating high interest fees.
Summing up
Auction finance can be an excellent tool for property buyers who want to take advantage of the opportunities available at property auctions. With fast approval times and flexible lending, it can give you with the funding you need and quickly.
Still, it's important to consider the costs involved, including higher interest rates and fees, as well as having a clear plan for repayment. By doing your homework and planning carefully, auction finance can be a valuable asset to help you make successful property purchases.
Frequently Asked Questions
How quickly can I get auction finance?
Auction finance is designed to be fast, with many lenders offering decisions within 24-48 hours. This quick turnaround makes it ideal for property auctions, where time is of the essence.
What is the typical loan term for auction finance?
Auction finance is a short-term loan, usually with a term of less than a year. You'll typically need to repay the loan within days after winning the auction, though some lenders may offer longer terms if needed.
Can I use auction finance for any property?
Yes, you can use auction finance for most commercial property, semi-commercial, or residential. In any case, the lender will usually want to make sure the property is suitable and good value. They'll also want to know your plan for repaying the loan.
What's involved in the auction process?
First, you need to find auction properties, which are typically listed by auction houses. Once you've identified a property you like, you can register to participate in the auction process. As a cash buyer, you'll have the advantage of being able to complete the purchase quickly, allowing you to bid effectively in a competitive environment.
About the author
Lawrence Howlett
Lawrence Howlett brings a results-driven mindset to his writing, shaped by over a decade of experience across finance, legal, and energy sectors. As the founder of Moneysavingadvisors, he’s built a reputation for turning complex financial concepts into clear, actionable insights for consumers. His writing stands out for its clarity, structure, and focus on delivering value.
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