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.

South African 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.

How does auction finance work?

Auction finance is a type of financing that businesses can use to purchase property or assets at auction. The process typically begins with you securing a pre-approved loan or line of credit from a lender before attending the auction. This pre-approval provides you with a clear understanding of your budget and borrowing capacity, allowing you to bid confidently within your financial means.

During the auction, if you successfully win the bid, you are required to pay a deposit, usually a percentage of the purchase price, immediately or shortly after the auction ends. This deposit is typically non-refundable and serves as a commitment to purchase the property or asset.

After winning the bid and paying the deposit, you must then arrange for the remaining funds to complete the purchase. In some cases, you may choose to use auction finance to cover the remaining balance. Auction finance options can include traditional mortgages, bridging loans, or specialised auction finance products offered by lenders.

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 South African 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)

What are the benefits of buying a property at auction?

Buying a property at auction offers several potential benefits for businesses looking to buy a property:

Opportunity for value: Properties sold at auction often have the potential to be purchased at a lower price compared to traditional sale methods. This can provide buyers with the opportunity to buy properties at a discount or below market value.
Efficiency: Auctions typically have a defined timeline, with set auction dates and deadlines for completing the purchase. This streamlined process can be good for buyers who want to buy property quickly and avoid long negotiations.
Transparency: Auctions are conducted openly, with all bidders having access to the same information about the property and the auction process. This transparency can help buyers make informed decisions and feel confident in their purchase.
Wide range of properties: Auctions often have a diverse selection of properties. This variety allows buyers to explore different options and find properties that meet their specific needs and investment goals.
Certainty of sale: Winning bidders at auction are typically required to pay a non-refundable deposit, demonstrating their commitment to the purchase. This can provide sellers with confidence in the sale and reduce the likelihood of deals falling through.

Get started with Swoop

Whether you’re buying 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. Get started today to secure the auction finance that suits your buying needs.

Testimonials

Swoop was amazing! I was looking for refinancing and they were straight onto finding me the best possible option. I would highly recommend them.

Laree Smith

Owner, F45 Cambridge

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, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, 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 and insurance.

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