Auction finance is a type of bridging loan that is used to purchase a property at auction. Bridging loans are used to purchase properties at auction as they can comfortably be processed in the 28-day completion timescale that is required when buying an auction property.
When buying a property at auction, certain rules must be followed. Firstly, the winning bidder must pay 10% of the purchase price on the day of the auction. You must then complete within 28 days (for residential properties, commercial and land may have slightly longer deadlines to allow for more complex processing).
If you fail to come up with the money at the end of the 28 days, you will lose your deposit and the right to buy the property.
Traditional mortgages can take time to complete, especially for unusual or commercial security. As a result of this, they leave you at risk of losing your deposit and costs.
Auction finance works by giving you a short-term loan on an interest only basis, often with no monthly repayments to make. Generally, applications can be completed within days, which is ideal for auction purchases. Assuming you have enough deposit (or are able to offer another property as additional security), and a solid exit strategy, your application stands a great chance of success.
As mentioned earlier, auction finance is a short-term loan, usually with a loan term of 1-18 months, although terms of up to 36 months are available. Regulated bridging loan terms are restricted to a maximum of 12 months.
Your exit strategy is how you plan to repay the loan at the end of the term (or before). Common exit strategies include a remortgage to a traditional mortgage, sale of the security property and sale of another asset.
In order to make a property auction finance application, you will usually need to provide the following information:
Auction finance can be used to purchase the following types of properties:
“Auction finance allows you to purchase property or land at auction. It is designed to complete quickly to meet auction conditions.
If you’re looking for funding to complete a property purchase in 28 days or less, auction finance – a type of bridging loan – is the ideal option”
Auction finance interest rates are between 0.43-0.85% per month, in most cases.
The lowest rates are usually reserved for lower LTV applications, with loans at 50% or below securing the best terms. This is because auction finance lenders price their applications to risk, and greater equity in the property reduces the risk of financial loss to the lender.
The interest rates charged on residential property are lower than those charged for an equivalent commercial property or land.
You may be eligible for lower rates on large bridging loans over £1,000,000.
In addition to the interest charged when taking out property auction finance, you’ll usually be expected to pay a number of fees.
They are;
This fee is charged by the auction finance lender and is usually 1-2% of the loan amount. It is paid on completion and can usually be added to the loan.
Although it is becoming less common, some lenders charge an exit fee when auction finance is repaid. Where charged, this would usually be 1 month’s interest.
Although we don’t charge a fee for arranging auction bridging finance many brokers do. This fee is usually between £500 and 1.5% of the loan amount.
In some cases, a physical inspection of the property by a chartered surveyor is needed. In many cases, we can avoid this by undertaking an electronic valuation, which can save you money.
This fee is paid to the solicitors for completing the legal work. Usually, both your own and the lender’s legal fees must be met by the borrower.
Yes, auction finance is a very quick way to secure the funds needed to purchase a property at auction, with applications usually completing in 5-21 days. Where possible, auction finance can often be completed in 5 days or less.
