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Auction Finance

What is Auction Finance?

Auction Finance is a form a bridging finance used for buying property at auction and specifically to complete a transaction quickly (typically within 14 or 28 days, in line with the Auction House’s requirements).

We can pre-qualify an applicant so you can be sure that funding will be in place if your bid is successful.

Auction purchases generally have to be completed within 28 days of the auction, and in most cases a conventional mortgage either cannot be arranged (if the property is not habitable) or will not be available within that time period.

The Auction House will usually ask you to pay 10% of the purchase price, plus the auction fees, at the time your bid is successful. You will then have a further 28 days to complete the purchase.

We can give peace of mind by pre-qualifying a purchaser prior to auction, to give the confidence that funding will be in place. A number of our lenders do NOT require valuations for auction purchases of residential properties, as they will work off purchase price.

What is Auction Finance used for?

Auction finance is used for auction purchases. This type of loan is designed to be fast and to enable you complete your purchase very quickly.

It is important that Auction Finance is used correctly, as it can be an excellent way to profit from properties with potential, which are not being sold on the open market via the more conventional Estate Agent channels. Here is how to make the best use of Auction Finance:

Research and Plan

The first stage is to identify what type of property you are going to buy. You will need to look at the online auction catalogue and chose a target property or properties. Consider how much work needs doing to the property. Is it in a good area? What are the selling prices and values of comparable properties in and around the area? Is the property good value, and can it generate a profit?

Provisional Acceptance

The next step is pre-approval. This is an initial approval process which might include credit checks, identification checks and a quick on-line assessment of the property. The aim of this is to give you the confidence that finance is available, and what amount of finance is available, in principle (usually as a percentage of the purchase price).

Win the Auction

Once you are all set and you have your pre-approval in place, you can go to the auction and start bidding. If successful, you will need to pay 10% of the purchase price there and then, possibly plus auction fees. You will then be given up to 28 days to complete the purchase through your solicitor. You will also be responsible for insuring the property straight away.

What are the Key Features of Auction Finance?

Fast loans! Designed to complete within the Auction House’s timeframe.

Loans from £25,000 with no maximum loan amount.

Auction Finance Rates start from 0.4% per month

No Exit Fees in many cases, however this Auction Finance Company specific.

No Valuations. In many cases a valuation report will not be required.

Free legals. Some lenders offer free legal fees. Bear in mind though that you will have to pay your own solicitor.

100% Auction Finance Available – 100% LTV available with other/ additional security.

Terms from 1 month to 2 years

For any property type in England, Scotland & Wales.

What are the Auction Finance Lending Criteria?

First Charge required on the property being purchased in favour of the auction finance lender.

Pre-arranged finance. You will have a Decision In Principle which allows you to make a bid at the auction with confidence.

Asset based loan. Auction Finance is based on the value of the property and there is more emphasis on the value of the property than the buyers income or credit status. Bad and poor credit scores are accepted.

Auction Finance can be used for properties that are currently un-mortgageable. This could include properties with no working kitchen or bathroom, which would therefore be deemed uninhabitable.

Defined exit strategy. A lender needs to know how you intend to pay the loan back, within the loan term.

What information do you need to progress an Auction Finance loan?

Buyers name, address & date of birth.

If the buyer is a company, the directors names and address are also required as well as the company name and number.

Address of the property to be purchased.

A copy of the auction Sales Particulars.

Narrative summary of your plans/ intentions for the property.

Explanation of how the Auction Finance will be repaid (usually via a sale or refinance).

Different Auction Finance Lenders have different criteria so other information may also be requested.

Auction Finance Frequently Asked Questions:

What kind of properties can be purchased?

Residential Property – You can use auction finance to buy a property regardless of its condition. Many landlords buy from auction and then refurbish the property, to then rent out. Using auction finance allows you to get the property into a mortgageable condition, and ready for a tenant to move in to.

Commercial Property – Offices, Industrial, Retail, Shops, Warehouses, Public Houses, Bars, Pubs, Hotels, HMOs can all be purchased using Auction Finance.

Mixed Use Property – Semi Commercial or Mixed-Use properties can be purchased with Auctions Finance.

Do you need a valuation report?

It is not always necessary, given the auction sales price is seen as the “fire sale” price. This can greatly increase the speed of the purchase.

Is Auction Finance Quick?

Most auction houses give you a defined period to complete within. Auction Finance can actually get the purchase over the line in less than 7 days, if necessary.

Who can borrow using auction finance?

An Auction finance bridging loan is available for any type of borrower and borrowing entity. If your plan is the buy, refurbish or renovate and then sell the property, then your own credit history is not as important. Having Experience of doing what you are proposing to do does help, but is not always essential, provided the project makes-sense, and is easy enough to execute.

What is an auction?

An auction is the public sale of a property (or other items) to the bidder who bids the highest.

Can I just turn up and buy a property?

Yes. You will need to present your identification and have 10% of the purchase price as your deposit. It is advisable that you get your Auction Finance pre-approved so that you can bid at the Auction knowing that you can complete on the purchase. It is advisable to arrange your finance before buying a property at auction.

How much can I borrow?

75% Loan to Value is typical. It is possible to get up to 100% of the purchase price if you are able to give the lender additional security. Loan amounts are from £25,000 upwards, with no upper limit.

What can the auction finance loan be used for?

For or any property type, purchased at auction.

How long can I have my auction finance bridging loan for?

Terms can be as long as 2 years, though most auction loans are repaid or refinanced within 6 months. Although it is all case by case with auction finance loans.

How much interest will I pay on my bridging auction finance?

The interest rate will depend on the loan to value, the loan amount, the property type and location, and the applicants profile. Interest can be as low a 0.4% per month or as high as 1.5% per month.

Do I need a valuation?

No. Positive Commercial Finance can facilitate Auction Finance without a valuation report.

Do I need a solicitor?

Yes. You will need a solicitor to do your legal conveyancing and deal with the Vendors solicitor (or auction house) and your Auction Finance Lender.

What is a legal pack, and where do I get it from?

A legal pack includes all the title information of the property and the searches on the property as well as any lease details. The legal pack is usually provided by the auction house in advance of the Auction.

When will I have to pay for the property?

You will need to pay 10% on the day of the Auction and the rest within 28 days.

What about insurance?

You will need to insure the property when you pay your deposit. The is required when taking out auction finance in the UK

Can Property Auction Finance be used to purchase other Assets?

Property Auction Finance must be used to purchase a property – but these properties can take many forms – such as houses, hotels, HMOs, retail, commercial, land and development sites.

Can I use auction finance to buy a house?

House purchases using auction finance is sometimes known as house auction finance.

If you want a fast, flexible and reliable service, try
Positive Commercial Finance.

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