Property bargains pass under the hammer every day, and if you want to secure great real estate opportunities, you need to have the capital in place to seal the deal. Auction finance can help. It’s a specialist form of funding that enables you to bid with confidence thanks to fast access to funds and its short-term benefits.

In this article, we explain how auction finance works, the reasons to use this form of funding, and how it compares to business loans or other property finance options.

What is auction finance?

Auction finance is a type of bridging loan designed for individuals and investors purchasing property at auction. Also known as auction bridging finance or property auction finance, it meets two essentials:

• It can be used to finance the purchase of auction properties in any condition. 
• It gives buyers the funds much faster than standard bridging loans or mortgages.

Auction finance comes at a higher rate of interest, but in return, you can go into an auction knowing the money is there if you need it. This removes the uncertainty of bidding on something mortgage lenders may refuse to take on.

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How does auction finance work?

Auction finance is similar to mortgage lending, but due to the specific nature of the funding, there are several differences in terms of flexibility, term length and rates. Auction houses typically have a 28-day deadline for payments, so traditional mortgages may not be suitable, whereas auction finance provides quicker funding access to purchase the property. 

Finance lenders will assess the property value, your exit strategy and financial health before approving an agreement, and will usually secure the loan against the property. 

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Key features of auction bridging finance solutions

As mentioned, auction finance is a form of bridging finance for developers and investors to access short-term capital to help acquire properties sold at auctions. 

Here are the key features you can expect from an auction bridging finance agreement:

• Loans can be pre-approved with an agreement in principle.
• You can access funds quickly to account for auction houses’ 28-day deadline.
• The finance can be used to buy residential, commercial or mixed-use properties and is available to developers, businesses, investors and private individuals.
• Loan-to-value ranges from 50% to 90%.
• An existing property or asset can be used as security for improved terms, in certain cases.
• There are often options available for how and when interest is paid.
• Your income and credit history are less important than your exit strategy when it comes to lender assessment criteria.

Benefits of using auction finance

So, how does the structure of auction finance and its key features benefit buyers? Here are the main reasons why you may want to use this form of funding:

• Speed is a priority – once approved, you should get access to funds in around 3 to 14 days.
• Auction finance is short-term funding, with repayment schedules often between 1–24 months, so the loan doesn't have to be an ongoing burden.
• You can get pre-approvals with an agreement in principle to move swiftly and compete with cash buyers.
• Auction finance bridges funding gaps until longer-term financing is in place.
• It’s suitable for non-mortgageable and foreclosure properties.
• This form of finance is ideal for property development and can include funds for refurbishment and improvements.
• Some lenders will allow you to use other properties or assets as security.

Do I need a deposit to secure auction finance?

Yes. You'll usually need to find a deposit of 10%–35% of the auction property value. For high-risk properties, you can expect to pay a higher deposit (up to 50%).

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Auction finance rates

The interest rate you'll pay for auction finance, usually quoted as a per-month rate, will often be higher than for a mortgage, but in line with most bridging finance options. Rates vary from lender to lender and property to property. You can expect to receive auction finance rates between 0.4 and 1% per month.

If you're an established developer with a proven track record of turning run-down properties into mortgageable homes, you'll likely get a better deal than a first-timer.

Interest can be charged in one of three ways – paying interest up front, month by month or at the end when you refinance or sell the property.

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What properties can you buy with auction finance?

Auction finance is purpose-built for buying properties at auctions. A lot of houses and premises go up for auction because they won't sell easily or fast enough on the open market. This means you can often pick something up well below market value. Alternatively, some properties are sold at auctions because the vendor wants to secure the highest price within a fixed timescale.

Can auction finance be used for commercial properties?

Yes. Auction finance is available for commercial properties, whether for business purposes or as a buy-to-let opportunity for additional revenue streams.

Can I use auction finance to buy a repossessed property?

Auction finance is ideal for purchasing repossessed or distressed properties. It allows buyers to act quickly, overcome hurdles that traditional mortgages may present and meet tight auction deadlines, to prevent missing out on bargains and opportunities ready for development.

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What types of properties can you buy with auction finance?  

Let’s explore the common types of properties that auction finance can support and scenarios where it’s a great option:

1. Residential property

Can you buy a house at auction? Absolutely. A developer might use auction finance to buy a property in a dilapidated state. A landlord or property investor might choose auction finance as a means to secure a property ahead of seeking a buy-to-let mortgage. A private individual might use auction finance to buy a home as a renovation project with a view to making it mortgageable.

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2. Commercial property

Commercial properties of all kinds can be offered at auction. Shops, pubs, restaurants, offices, warehouses and industrial units. With auction finance, a business owner could secure new or additional premises without tying up working capital. A developer might see an opportunity to profit from a refit. An investor might use auction finance to acquire an office block for commercial letting.

To get a lender on board, you'll need a business plan to show how you intend to exit the loan – it could be by switching to a commercial mortgage or selling the property later.

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3. Mixed-use property

Auction finance is a popular choice for developers looking to take on a conversion or renovation project for a property that's part commercial and part residential. A building with flats above shops, for example. A business owner might choose auction finance to buy additional space that suddenly becomes available.

With mixed-use property, lenders will generally want to see some kind of business plan for the commercial side.

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4. Foreclosure

Foreclosure auction financing deserves a special mention here. Foreclosure property comes to market when the lender takes possession if the owner/occupier can no longer pay the mortgage. In the UK, most people call this repossession.

Here, the seller is after a quick, uncomplicated sale, often at a guaranteed minimum price. This makes foreclosure properties ripe for bargain hunters.

Foreclosures happen to commercial and buy-to-let owners too, and even to new-build homes where the developer hasn't moved stock fast enough.

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5. Land

Bridging loans give quick-to-move buyers the opportunity to acquire land with or without planning permission. Obviously, due diligence is usually carried out to avoid the risk of permission not being granted. But once approved, long-term finance can be arranged through a self-build mortgage.

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How to get finance for auction property purchases

If you think auction finance can support your property plans, you need to know how to get started before exploring potential lenders.

Here's a summary of the main steps involved in getting finance for auction property purchases: 

• Create a plan and budget: Decide on the type of property you want and target price range, plus your budget for all other likely costs (such as for refurbishment). Also, define your exit strategy (e.g., resale, refinance, rental).
• Speak to a specialist auction finance lender: Get expert guidance tailored to auction timelines to understand the process.
• Collate key documentation and financial information: Ensure you have all the necessary details for lenders to assess your plans and financial health.
• Apply for funds to cover the deposit: Typically, 10% of the purchase price is due immediately after a successful bid. You’ll undergo a credit and affordability check before getting approval. 
• Obtain an agreement in principle: This allows you to bid with confidence and speeds up the process post-auction.
• Bid on a suitable property, pay the deposit and notify your lender: You’ll have 28 days to complete the purchase, so prompt communication ensures the finance process begins without delay.

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How to improve your chances of getting auction finance

Bear in mind that some things may work in your favour and some that could work against you when applying for auction finance. Applications for bridging finance for auction property are assessed on a case-by-case basis.

Here are some tips to improve your chances:

• Plan your exit – take time to define your exit strategy with a realistic timescale and clear plan of action.
• Up your deposit – try to raise a higher deposit than the minimum, as this makes you less of a risk and may open up reduced interest rates.
• Keep your credit clean – certain lenders will steer away from buyers with a poor credit history, so look to build your credit score.
• Get property experience – if you don't have experience with property, consider finding a partner who does or speaking to a specialist.
• Have collateral – some lenders may provide better terms if you can offer another property or asset as security.

Alternatives to auction finance and additional funding options

While auction finance is a highly flexible form of property financing that can open doors that would otherwise be closed to individuals and commercial buyers, there are other funding options to consider. Also, many buyers use auction finance as a quick fix to cover required deposits before securing long-term finance.

It’s worth exploring a commercial mortgage or property development loan alongside auction financing, so you have everything to make the purchase a worthwhile investment. 

Another finance option to consider is an unsecured, flexible business loan. These are usually provided by digital lenders, like iwoca, which have easy online application processes and automation-powered approvals to simplify funding. 

For example, with iwoca’s Flexi-Loan, applications take just minutes, and you can expect a funding decision within 24 hours – successful applicants often get access to funds in a few hours. You can borrow £1,000 to £1 million for as little as a day right up to 60 months, depending on your needs. Repayment terms are aligned with your cash flow, and you’ll only pay interest on what you use. Plus, we never charge for early repayments. 

Explore iwoca’s flexible business loans

More on commercial property finance:

• Commercial Property Finance Hub
• Guide to Property Development Finance
• What is Construction Finance?
• Bridging Loans Explained
• Everything You Need to Know About Commercial Mortgages

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