Auction Finance

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Everything to Know About purchasing property at auction

The nature of auction buying is fast-paced, and so is the lending process designed for property buyers at auction. Auction financing has a much faster timeline than typical lending because of the payment structure for purchases.

If you’re a winning bidder and have secured yourself new property at auctions, it is standard to have 10 percent of the purchase price prepared as a down payment typically due 28 days after the initial sale. Auction finance is the process that takes place after the auction and expedites the loan for full payment. Auction finance is the process you are typically pre-approved for, and when the property is secured, the auction finance process begins.

Table of Contents

How does a property auction work?

You’ve officially won a new piece of property at auction, but don’t know where to begin to secure the financing you need for the total purchase.

Most auction finance is short-term and interest-only, but the funds will be paid to the solicitor much sooner than a typical loan. It is recommended to work with a broker to ensure the necessary paperwork is submitted to guarantee the fastest possible transfer of funds.

A broker will recommend that a buyer has an exit strategy, which is a plan for repayment of the debt. Lenders will typically ask for the saleability of the property as evidence of an exit strategy.

Repayment terms for auction loans are typically 1-24 months but can be longer. Auction finance does not ever hit your bank account, as this gets paid directly to the person selling through solicitors. Most people get bridging finance when they get auction properties.

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Can you get a mortgage on an auction property?

It is critical for buyers planning to bid on a property at auction to contact a broker if they know they can’t pay the full ticket price upfront. An expert broker will be able to help auction buyers secure a mortgage in principle before the auction.

Potential property auction bidders should work with their broker to submit all of the necessary paperwork to obtain mortgage offers. Brokers will find lenders who are able to offer a buyer a set amount of money in principle in advance of the auction.

How much deposit you will need?

Securing a property at auction requires a minimum deposit of 10% of the purchase price which needs to be paid once you have secured the bid. You then tend to have 28 days to secure the rest of the finance and complete on the purchase. If you are unable to complete on the purchase of the property then you may be liable to loose that 10% deposit. We strongly suggest that you speak to a mortgage broker to find out about your options. Most property investors either have the full cash amount in savings to purchase the property outright or they opt for bridging finance. Bridging lenders are able to complete on the transaction within 28 days. 

Bridging loan for property auction

Bridging loans are designed to be short-term, interest-only loans that provide necessary credit to a buyer before they secure their main source of funding. These types of loans are granted much faster than other lines of credit, however, they have a higher interest rate and require proof of an exit strategy.

A broker who is savvy in auction finance and bridging loans can help you get your paperwork and exit strategy in order for a quick approval. There are many ways that loaners repay their debt, including selling the property, refinancing the property, or paying off the debt with cash.

What kind of interest rates are available?

When considering interest rates for auction finance, it is important to note that they typically are higher compared to mortgage rates. The specific rate on offer will depend on your experience as an investor, your assets and liabilities and of course the property you are purchasing. You have to keep in mind that not every lender will be able to complete within 28 days so therefor we must go with lenders who can move quickly. 

Auction finance lenders commonly will have the below charging structure: 

Serviced interest: Interest is paid monthly with the entire loan becoming due at the end of the loan term.

Retained: All interest and fees are added to the loan and you receive a NET amount of this figure subject to loan to value constrains. You then settle the full loan balance at the end and make no monthly payments. 

Can I get 100% auction finance?

You can get 100% finance in auction. However this will depend on a number of attributes. 

Auction finance lenders will lend 100% of the property purchase as long as they can cross charge against other properties that you have in the background. Lenders will assess how much equity you have remaining on these other properties. 

If this is your first property then you will not be able to get 100% finance at auction. The minimum deposit tends to be between 20 and 25% of the purchase price.

Are there any limitations on the property types available for purchase at auctions?

Property investors who generally purchase properties at auction are looking to add value to the property by creating more space, converting the use of the property or a simple refurbishment. A lot of properties that are in auction are known not to be habitable. Most bridging lenders will lend on these types of properties as long as you have a plan in place to bring the property up to standard and your exit plan from the bridging loan. Remember bridging loans tend to be short term.
Lenders will lend on:
  • Residential properties
  • Commercial properties
  • Land 
  • Un habitable properties
  • HMOs
  • Semi Commercial properties 


Is auction finance right for you?

Do you have your eye on a property set to go up for auction? Secure the financing you need ahead of time by speaking with a Mortgage Avenue broker now!

Your home may be repossessed if you do not keep up repayments on your mortgage.

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