How to Get Finance for an Auction Property

By Kristian Derrick

Last Reviewed: 28th June 2024

Auctions are naturally fast-paced and competitive, so finance options must be quick and efficient when buying a property at auction.

Standard mortgages don’t work for auction finance since they take too long, typically a few months, to arrange, process, and finalise.

Auction finance is more suitable for buying a house at auction since it’s usually quicker to arrange.

Here’s everything you need to know about how to get finance for an auction property.

What Is Auction Finance?

Auction finance is a bridging loan that can help you buy a property at auction. It’s usually quick to arrange and can be faster than a regular bridging loan agreement.

Auction finance offers a much quicker turnaround, making it ideal for buying at auction where timing is crucial.

The sale is usually agreed upon when the hammer falls if your bid is successful, meaning you’ll not have much time to raise the necessary funds.

When buying an auction property, you must immediately put down a 10% deposit and pay the remaining 90% within 28 days.

It would help if you had your finances in place before the deadline to avoid losing your deposit. Auction finance is well suited to meet these deadlines.

How Does Auction Finance Work?

Lenders offer auction finance on a short-term, monthly, interest-only basis.

You can get a decision in principle within 24 hours when you apply and have the funds in your account within 7 to 14 days.

You can arrange the funding in advance so you know how much your budget is before the hammer falls.

Auction finance lenders will require you to have another asset or property as security or enough deposit and evidence of a clear exit strategy.

An exit strategy involves how you plan to repay the debt at the end of the loan term. It can include selling the property or remortgaging.

The term for auction finance is usually shorter than a standard mortgage and can range from 1 to 24 months or up to 36 months among some lenders.

What Interest Will You Get with Auction Finance?

Auction finance usually features higher interest rates than mortgages, but they can be similar to what you’d get on a regular bridging loan.

The exact interest amount will depend on how the lender charges interest and the quality of your auction finance application.

Lenders offering auction finance can charge interest in various, including:

  • Rolled up – The lender can tally up the monthly interest and add it to the loan amount at the end of the term. You’ll then pay the cumulative total in full at the end.
  • Monthly – You pay the interest monthly, and the total debt is due at the end of the term.
  • Retained – At the beginning of the term, the lender adds the monthly interest payments to the loan amount to calculate how much you will owe. You’re then required to pay for everything at the end.

How Can You Get the Best Deal on Auction Finance?

You can take various steps to put yourself in the best position to secure auction finance.

These include:

Getting Your Documents in Order

Lenders will need to see various documentation as proof, including:

  • Proof of ID – A passport or driver’s license and proof of address or residency.
  • Proof of Exit Strategy – You’ll need an agreement in principle if you plan to remortgage. If you use a non-standard exit strategy like inheritance or investments, the lender will require proof that the funds will enter the account in a set timeframe.
  • A Valuation Report – Getting the property valuation in advance may not be necessary, but some lenders may require you to pay for the costs.

Checking Your Credit Profile

Download your credit report to correct any inaccuracies and have outdated information removed.

Bad credit isn’t a significant issue, provided it doesn’t interfere with your exit strategy. However, improving your credit can increase your chances of getting a good deal.

Speaking to a Specialist Auction Finance Broker

Consulting a broker specialising in auction finance can help boost your chances of success. The broker can offer bespoke advice, help you find the best lender, and negotiate the best deals.

They can guide you on the proper steps, including making a winning application.

What Are the Eligibility Criteria for Auction Finance?

Lenders will assess your eligibility based on the following factors:

  • The deposit – Most lenders will require you to put down at least 10-25% of the loan amount as a deposit. The larger your deposit, the lower the interest rates you will have to pay.
  • Your exit strategy – A strong exit strategy will increase your chances of getting an excellent auction finance deal. Lenders will want to see evidence of the value of the property you’re buying, its saleability, or an agreement in principle from a mortgage lender as proof that you have a viable exit strategy in place.
  • Your credit rating – Your credit rating won’t affect an offer as long as any outstanding debts or adverse credit doesn’t impact your ability to repay the loan. However, good credit can boost your chances for a good deal with lower interest rates.
  • Your experience in property – Having experience with similar property purchases and a strong track record can boost your eligibility. However, you can still qualify for auction finance as a first-time buyer. You can also use any other property you own as security to increase your creditworthiness.

You can still qualify even if you don’t meet all the above criteria. Lenders offering auction finance are very flexible and can assess applications on a case-by-case basis.

Related reading: 

What Properties Can Buy with Auction Finance?

You can use auction finance to buy various property types at auction, including:

  • Commercial
  • Residential
  • Unmortgageable properties
  • Mixed-use
  • Land (with and without planning permission)
  • HMOs
  • Agricultural properties

Final Thoughts

Once you’ve identified a property you want to bid on, consult a qualified and experienced auction finance broker.

They can assess your needs and circumstances and have the expertise to help you land a good deal.

Call us today on 01925 906 210 or contact us to speak to one of our friendly advisors.

More mortgage advice

Self Employed
2024-06-28 17:39:10

Getting A Self-Employed Mortgage Using Net Profits