Auction finance

Buying property at auction may speed up the buying process, let you pay a lower price, or give you the opportunity to purchase an unusual property.

UK property auctions move fast. Buyers must pay in full within a time frame that’s usually too short to get a traditional property loan. So, if you don’t have the cash to pay upfront, how can you buy at auction? The answer is Auction Finance – a fast and simple bridging loan that lets you buy with confidence at auction, then gives you time to re-sell for a profit or secure a long-term mortgage. Don’t miss out on bargains. Use an auction loan to be a winner when the hammer falls. 

What is auction finance?

Auction Finance is a type of bridging loan used to buy residential or commercial property at auction. Because auction houses usually require payment in full within 14 or 28 days of purchase (56 days if bought online), it can be difficult for some buyers to arrange a traditional property loan within this short time frame. Auction finance can cover this gap for 1 to 24 months, allowing the borrower to pay the auction house according to their rules, and sufficient time to re-sell the property or arrange a long-term mortgage to replace the auction loan.

What types of auction finance are there?

All auction finance is essentially the same: A lender provides short-term funds to pay the auction house, then the buyer repays the lender by either re-selling the property or replacing the auction loan with a traditional residential or commercial mortgage

However, depending on their available cash, the buyer may choose from two types of auction finance to pay the necessary deposit: 

  • Standard auction finance: The buyer provides a cash deposit, (typically 20 – 35% of the property purchase price) and the lender makes up the difference (80 – 65%). 
  • 100% auction finance: The buyer offers other property they own as collateral to fulfill the value of the deposit, and the auction finance lender covers 100% of the cost of the property. In this case, the buyer will need to show that there is sufficient equity in their collateral to cover 20 – 35% of the property value, plus lender fees and expenses. The 100% option is typically more costly than the standard route. 

In all cases, auction finance is more expensive than traditional property loans.

What can auction finance be used for?

Auction finance can be used to buy a variety of UK properties:

  • Residential – houses, bungalows, flats
  • Investment properties – buy to lets and HMOs
  • Semi- commercial
  • Fully commercial 
  • Development land
  • Farmland

The properties may be used by the buyer in different ways:

  • Residential property for the buyer to live in
  • Buy-to-let investment property to rent out
  • Commercial property for the buyer to operate their own business from, or to rent out
  • Property to develop and sell on for a profit
  • Unmortgageable property for renovation and selling for profit
  • Land for farming, or development with or without planning permission

Is auction finance the same as a bridging loan?

Yes, although standard bridging loans can take much longer to arrange. Because of the tight time constraints, auction finance uses the purchase price of the property as the valuation and does not require an independent audit. This makes it faster to secure the borrowing buyers need.

What are the features of auction finance?

The key features of auction finance:

  • Borrowers can get pre-approval for a loan. This provides confidence to buy at auction
  • Available at short notice
  • Loans up to 80% of purchase price
  • 100% of purchase price available with borrower collateral
  • Repayment from 1 to 24 months
  • Interest rates higher than traditional property loans and usually charged monthly
  • Lender will charge fees for valuation, loan arrangement, legal costs, exit fee, broker fee
  • Borrower must have ‘exit strategy’ to secure loan – either re-selling the property or re-financing with traditional mortgage

What are the criteria to qualify for auction finance?

Auction Finance is based on the value of the purchased property. This means there is greater consideration of the value of the property than the buyer’s income or credit status. Bad and poor credit scores can be accepted. 

What evidence do I need?

Even though auction finance is based on the value of the purchased property, the borrower must still meet the following demands:

  • Proof of funds to cover the purchase price deposit (20 – 35% in most cases), plus funds to pay auction house fees and government stamp duty if applicable 
  • Proof of adequate equity in owned property if used as collateral for a 100% loan
  • Exit strategy; either re-selling the property, or re-financing with traditional mortgage (buyer must show pre-approval for traditional mortgage to repay the auction loan)

Get started with Swoop

Whether you’re buying UK property for a place to live, to use for your own business, or you’re seeking to re-sell for a profit or rent out the property, buying at auction can be a great way to benefit from real estate. No matter if you’re a first-timer or a seasoned professional, Swoop has you covered. Contact us today to secure the auction finance that suits your buying needs.

Testimonials

Written by

Chris Godfrey

Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance.

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