Auction Finance
Auction Finance
Auction Finance Solutions
Buying a property at auction can be an exciting opportunity, but it requires swift financial action. Traditional mortgages often take time to arrange, involving extensive paperwork, checks, and surveys. When time is of the essence, auction finance provides a fast and efficient solution, ensuring you can complete your purchase without delays.
What Can You Buy with Auction Finance?
Finance offers flexibility for a variety of property types and land purchases. Depending on the lender, you can use it for:
No matter the type of property you're bidding on, auction finance ensures you're financially prepared to act quickly.
- Residential properties
- Commercial properties
- Buy-to-let investments
- Development land
- Property renovations
- New-build projects
How Does Auction Finance Work?
The auction process is fast-paced, leaving little room for delays. When you win a property at auction, you enter into a binding contract as soon as the gavel falls. This means you must complete the purchase within a set timeframe, often as short as 28 days.
Traditional residential mortgages, which involve pre-purchase surveys and detailed checks, are rarely suitable for auction purchases due to the time required. Auction finance, however, bypasses many of these steps, providing a streamlined, fast-track solution to secure the funds you need.
This type of loan is ideal for properties that may not meet traditional mortgage criteria, such as older buildings or those in need of significant renovation.
How Much Can You Borrow and for How Long?
Auction finance typically offers Loan-to-Value (LTV) ratios up to 75%, though this varies by lender. As it's a short-term financing solution, loan terms usually last around 12 months, giving you ample time to arrange a long-term mortgage or another financial arrangement to complete your purchase.
Traditional and Modern Method Auctions
Two quite different things are now sold under the word "auction", and they place very different demands on your funding.
Traditional auction. Contracts exchange the moment the gavel falls. You pay a deposit, normally 10%, on the day, and completion follows in a fixed period set by the contract — commonly 20 working days, often described as 28 days. You are legally committed from the fall of the hammer, whether or not your funding arrives.
Modern method of auction, sometimes called conditional auction. Winning the bid secures a reservation rather than an exchange. You pay a non-refundable reservation fee, then typically have 28 days to exchange and a further 28 to complete. The timescale is more forgiving, but the reservation fee is frequently several thousand pounds and is generally payable on top of the purchase price rather than counting towards it.
Check which method applies before you bid. Buyers assume they have 56 days when they have 20 working days more often than any other error in this process.
Reading the Legal Pack
The legal pack is published before the sale and is the single most important document you will see. It is also the one most often skimmed.
It will usually contain the title register and plan, searches, any leases or tenancy agreements, replies to standard enquiries, and — most importantly — the special conditions of sale.
The special conditions are where the risk sits. They routinely oblige the buyer to pay the seller's legal costs, the search fees and the auctioneer's commission. They may shorten the completion period from the general conditions. They may disclose a defective title, an absent right of access, a short lease, or a sitting tenant.
Have a solicitor read it before you bid, not afterwards. The cost of doing so on a property you do not win is trivial against the cost of discovering a problem once you are contractually bound.
Where a property is tenanted, establish the type of tenancy and the rent actually being paid. A lender's willingness to fund can turn entirely on this, and a regulated tenancy will change the valuation substantially.
If You Cannot Complete
The consequences of failing to complete a traditional auction purchase are severe, and worth understanding before rather than after.
You forfeit the deposit — 10% of the price, not a token sum. The seller may re-market the property and pursue you for any shortfall against your bid, together with the costs of the second sale. Interest is normally chargeable on the outstanding balance for the period of delay under the general conditions.
This is precisely why funding should be agreed in principle before the sale, with a lender that has seen the legal pack and understands the property. Bidding first and arranging finance afterwards is how buyers lose deposits.
Costs Beyond the Hammer Price
Budget for the hammer price plus a meaningful margin, because several costs arrive with it.
Expect a buyer's premium or administration fee payable to the auctioneer, the seller's legal and search costs where the special conditions impose them, stamp duty on the full purchase price, your own legal fees, and the lender's arrangement, valuation and exit charges.
On a modern method sale the reservation fee sits on top of all of this. Add the works themselves where the property needs them, and the true cost of an auction purchase is routinely well above the figure on the day.
Next Steps
At Bradgate FS we aim to make choosing and applying for a mortgage, protection, loan or insurance as stress-free as possible.
Our experienced auction loan team is here to guide you through the process, ensuring you secure the right financing quickly and efficiently. We work with a wide range of lenders to find the best solution for your specific needs, allowing you to focus on the auction and your property goals.
Related
Important information
Some bridging and auction finance is not regulated by the Financial Conduct Authority.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR LOAN.
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