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Auction finance loans

Author: Myles Robinson - Expert Finance Advisor

Posted: May 10, 2022

Auction Finance Bridging Loans

Auction finance loans are used for a range of uses such as land, semi-commercial and commercial purchases as well as pre-purchased homes. When a property requires refurbishment then you may not be able to get a mortgage therefore bridging loans are the perfect option under a refurbishment loan for example. We can source auction finance loans for both personal and commercial clients.

Auction loans are mainly used to purchase property at auction when short term finance is required when buying a property. The way that auction finance works is usually quick and many lenders are able to get finance in place within days.

When you are looking to get auction finance in place for your new auction purchase it is paramount that you have as much information to hand.

We deal with the simplest and most complex cases of bridging loans

We have access to over 200 lenders in the UK to accesss the best rates


What Is Auction Finance?

Auction Finance is basically bridging finance that is used for purchasing a property at auction and more importantly, to complete the deal quickly (usually within 14 to 28 days, which is expected by most auction houses).

Auction loans are great for accessing large amounts of cash quickly, commonly known as bridging finance. They are used mainly for property purchases whilst waiting for an existing property to complete. Read our bridging loan example guide for further information on bridging loans.

Bridging finance is popular with property developers who require commercial finance for development loans and commercial properties as well as land purchases. Other uses can be home renovations and funding for restoration work to buildings such as a barn conversion. You might be offered an open bridging loan or a closed bridging loan depending on what you are purchasing and more specifically, your circumstances.

Whilst most bridging loans for auction purchases are for personal use, they are popular with commercial bridging loan clients. Funding buy-to-let or BTL properties is popular for commercial clients. These can be both first-time investors or seasoned buy to let investors.

Auction bridging loans are usually offered between 1 and 24 months. The loan is repayable in monthly instalments or at the end of the term (rolled up). When applying for a bridging loan is usually much simpler than usual finance applications.

The application stage is usually around 2 to 10 days. Credit checks are not usually required as long as there is suitable security for the lender.

Auction Finance Loans: How Do They Work?

Property auction finance loans are usually put in place before you attend an auction house so that you have access to cash to complete your desired purchase. If you take out a bridging loan then you must ensure you have an appropriate exit route as they are not suitable for long term lending.

You will be required to pay the bridging auction loan off in full before re-financing. Below is some information on how auction finance works:

Research your intended investment:

When looking into auction investments it is important that you plan and research the auction house that you intend to bid at. If you are the successful bid then you must be sure that everything is in place for a smooth transaction. There are many auction houses around the UK which offer in-person bidding and online bidding.

Once you have decided and are happy with the asset then you can proceed to get provisional acceptance from a lender. By using a specialist bridging finance broker such as Loan Corp, we will ensure your lender is authorised and regulated by the financial conduct authority or FCA.

Provisional Acceptance:

This next stage of the process of securing a bridging finance loan is where you will get provisional approval from a specialist bridging loan lender. Many lenders specialise in auction finance loans and will be able to help you along the way.

They will ask for a range of personal documents and focus highly on the security you can offer for the loan. If you are new to property finance at auctions then they may complete more in-depth checks over a seasoned developer.

You should speak to someone like us to ensure you are getting the best bridging loan advice possible for your requirements. Sometimes credit checks may be required if the security you are providing for the loan is questionable.

Conditional Approval:

Once you have provisional acceptance for your auction loan then you will get conditional approval from the chosen lender. At this stage, you will often be able to have an agreement in principle with set terms that you must adhere to. The payable deposit on the day and loan to value will also be agreed upon.

Win the auction:

Now you have attended the auction and have hopefully won the property or asset, then you will need to get the balance paid before 28 days. The lender that you have chosen with the best bridging mortgage rates will pay out the rest of the loan once everything is finalised. It helps if they are registered in England and Wales to speed up releasing funds for purchases at auction.

What happens now?

Ensuring that you get a smooth completion is paramount to the auction finance loan completing with no issues. You must be in constant contact with the bridging finance lender, solicitors and anyone else involved. In addition, you will find that ensuring everyone is on top of their part really does speed up the process.

Advantages Of Auction Finance:

Bridging loans for auctions are the best way to finance purchases of high value. They can be riskier than other finance but there are still many advantages as below:

  • Quick application and payout processes make them ideal for access to quick cash
  • You can roll up the loan and pay at the end of the term
  • The bridging market is competitive so you can access some fantastic low rates
  • You can usually get the property for less than market value at auctions
  • You can get loans for a property that is not possible to mortgage
  • Perfect for development loans

Disadvantages of auction bridging finance:

  • They are usually expensive. Compare bridging loans to get the best rates
  • If any issues arise they can be costly such as overdue developments
  • Failure to repay the full loan on completion may result in repossession and high costs

We deal with the simplest and most complex cases of bridging loans

We have access to over 200 lenders in the UK to accesss the best rates


Auction Finance Loans: Interest Rates To Expect

Interest rates for bridge loans vary with many factors involved. We have access to over 200 lenders in the UK, our bridging finance lenders all provide finance for auction loans.

Usually, you would be looking at interest rates from 0.37% right through to 1.6% over up to 2 years’ terms. You may be subject to additional charges such as valuation fees, lender administration costs and a broker fee.

Auction Finance: Things To Consider Before Applying

As with any purchase, it is essential that you do your research and are sure that you have suitable means to finance the auction purchase. If you have existing mortgages then you may need to let the existing mortgage provider that you are taking out a bridging loan for an auction purchase.

You need to be aware that auction bridging loans serve a very specific purpose and you have to be knowledgeable and proficient in what you are taking on. It is recommended that you have a clear exit strategy and route for the completion of your bridge loan.

When you re-finance your bridge loan, normally you would take out a mortgage however there are other routes such as selling the property or asset. We can help for both UK and overseas bridging finance as we can source lenders suitable for your specific requirements.

You will be given a choice of repayment options for your new auction purchase. Either monthly repayments of the loan amount including interest or everything rolled up for payment at the end of the term. Sometimes it may be that you require another bridge so therefore you will need to re bridge and sign a new agreement. The APR rates may differ at this point.

We have seen many cases where clients have unregulated bridging finance or even regulated in place for an auction purchase but they do not win the bidding. In these cases, it can be frustrating and you may be required to re-apply for another property listed as a lot on another auction.

Fast Auction Finance Loans

OK, so you are looking to get a bridge loan for an auction purchase. Great news. Here at Loan Corp, we are ready to take your enquiry and help you at every stage of your application. We can help get a bridging loan with bad credit if you don’t have the best credit due to the loan usually being secured on an asset.

We take the stress out of getting auction finance loans. Contact us today using the form below or give us a call to discuss how we can help with our panel of 200+ lenders that we prop your requirements.

We work with some of the easiest and most complexes alike. Whether your financing requirements for your auction purchase are straightforward or very complex, we have lenders that take into consideration a range of bridging finance criteria that can take your case.

We also work with 6 independent auction loan providers that have large reserves of cash to lend to our clients. These are wealthy private investors who provide complex bridging requirements with finance as they are not ‘box tickers’.

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