Property auctions offer excellent opportunities to find competitively priced properties, but the strict completion deadlines can catch buyers off guard.
When you win an auction bid, you’ll need to pay the full amount within 28 days – far quicker than a standard mortgage can be arranged.
That’s where bridging loans come in. These short-term loans can help you meet auction deadlines while giving you time to sort out long-term funding.
Let’s look at how bridging finance works for auction purchases and what you need to know before bidding.
Why Property Auctions Need Special Finance
Property auctions work very differently from buying through an estate agent.
Once the hammer falls, you’re legally committed to the purchase and must pay a 10% cash deposit immediately. The remaining 90% needs to be paid within 28 days, when completion takes place.
Miss this deadline and you’ll lose both your deposit and the property.
Standard mortgages simply can’t keep up with this timeline. Even straightforward mortgage applications often take 4-6 weeks to complete. Add in factors like property condition or unusual construction, and the process can stretch even longer.
This speed requirement makes bridging loans particularly well-suited for auction purchases.
They can be arranged in as little as 5-7 days, letting you meet auction deadlines confidently. You can then take your time arranging a longer-term mortgage or selling another property to repay the bridge.
Read more: What Can a Bridging Loan Be Used For?
Understanding Bridging Loans for Auction Purchases
A bridging loan is a short-term secured loan that covers a funding gap until you can arrange longer-term finance or sell assets.
With auction finance, the loan is secured against the property you’re buying, sometimes alongside other assets if needed.
These loans work differently from mortgages. Rather than lasting 25 years, they run for just 3-24 months. You can borrow up to 75-80% of the property’s value, with some lenders offering more against the right security.
First charge bridging loans are used when there’s no existing mortgage on the property. Second charge loans can be arranged if there’s already a mortgage in place. Your broker can advise which option suits your situation best.
Read more: Understanding Bridging Loan Criteria & Eligibility
Let’s talk bridging loans!
Costs to Consider
Bridging finance comes with several fees beyond just the interest payments.
You’ll need to budget for:
- Arrangement fees are usually 2% of the loan amount
- Legal work for both you and the lender
- Professional property valuation
- Potential exit fees when you repay the loan
For example, on a £500,000 auction purchase, you will pay £10,000 in lenders arrangement fees. Always get a full breakdown of costs upfront so there are no surprises.
Who Can Use Auction Bridging Finance?
Bridging loans for auctions suit all types of buyers, from seasoned investors to first-time auction purchasers.
Property developers often use them to buy renovation projects, while business owners might secure commercial premises this way.
You’ll need:
- A clear exit strategy showing how you’ll repay the loan
- A suitable deposit (usually 25-30%)
- The property or other assets as security
- To meet basic age and UK residency requirements
The focus is more on your exit strategy and the property’s value than traditional income assessments, making these loans accessible to many buyers.
Read more:
Property Types Suitable for Auction Finance
Most properties sold at auction can be funded with bridging loans, including:
- Houses and flats needing renovation
- Commercial buildings
- Mixed-use properties combining residential and business space
- Land with planning permission
- Non-standard construction properties
- Repossession properties
- Uninhabitable properties
Even properties unsuitable for standard mortgages, like those without kitchens or bathrooms, can often be financed this way.
The Application Process
Getting auction finance arranged starts well before the auction day.
First, speak with a specialist broker who’ll assess your needs and find suitable lenders. They’ll help secure an agreement in principle so you can bid with confidence.
Once you’ve won the auction, the formal application begins. The lender will value the property and review your exit strategy. Legal teams then finish the conveyancing paperwork, aiming to complete within the 28-day deadline.
Keep communication channels open throughout the process. Small delays can quickly become problems with such tight timeframes, so working closely with your broker helps prevent issues.
Read more: Do you need a valuation for a bridging loan?
Planning Your Exit Strategy
Your exit strategy is how you’ll repay the bridging loan, and it needs careful thought.
Common approaches include:
- Selling the property after renovation
- Refinancing to a standard mortgage
- Using proceeds from another property sale
- Business profits or other incoming funds
The stronger and more precise your exit strategy, the better terms you’re likely to be offered. Your broker can help you present this convincingly to lenders.
Read more:
How a Broker Helps with Auction Finance
Working with a specialist broker gives you several advantages when arranging auction finance. They know which lenders work best for different situations and can often secure better terms than going direct.
Brokers understand both the auction process and lending criteria, helping spot potential problems before they arise. They’ll package your application effectively and manage the process to meet tight deadlines.
Read more: Why Use a Bridging Loan Broker?
Alternative Finance Options
While bridging loans are well suited for auctions, they’re not your only option.
Development finance might suit major renovation or building projects better. Some auction houses offer their own finance packages. Cash buyers might consider releasing equity from other properties.
Each option has its merits, but bridging loans often provide the best balance of speed and flexibility for auction purchases.
Next Steps
If you’re considering buying at auction, start planning your finance early.
Speak with a broker about your options and get an agreement in principle before bidding. This preparation lets you act confidently when the right property comes up.
Remember that every auction purchase is unique. What works for one buyer might not suit another, so getting professional advice helps you make informed choices about your specific situation.
To speak with a specialist broker, please call us on 020 3951 2828.
FAQ
Bridging loans can be arranged in 7-10 days with the right documentation. Working with a broker can speed up the process.
Most lenders require 25-30% deposit, though some may accept 20% with additional security.
Read more: Do You Need a Deposit for a Bridging Loan?
Yes, as lenders focus more on the property value and exit strategy than credit history.
Read more: Do You Need a Good Credit Score for a Bridging Loan?
Most property types are acceptable, including residential, commercial, and land.
Read more: What is a Bridging Loan Secured Against?
Only loans secured on your main residence are regulated by the FCA.
Our loans start from £150,000, though some may consider lower amounts.
Read more: How Much Can I Borrow on a Bridging Loan?
Yes, you’ll need a solicitor to handle the legal aspects of both the loan and property purchase.
Read more: Do You Need a Solicitor for a Bridging Loan?
Yes and this is a popular option. Many lenders offer funds for both purchase and renovation costs.
Yes, bridging loans are available for commercial property purchases and semi-commercial/mixed-use.
