Auction finance: a guide for property developers and businesses

Auction finance: a guide for property developers and businesses


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Property bargains pass under the hammer every day. Commercial and residential alike, on offer to the highest bidder. How is it that some people in the room seem to hold all the winning hands? Where do they get the funding at such short notice?

Simple. They use a specialist form of property bridging loan called auction finance.

What makes auction finance different from other forms of bridging loans and property financing? What kind of property can you use it for? Who can use auction financing and how can you get it? Read on for the answers to all this and more.

What is auction finance?

Auction finance is a specific type of bridging loan for people buying 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. And it gives you reassurance you can pay the purchase price in full within the auction house's typical 28-day deadline.


How does auction finance work?

Auction finance is similar to mortgage lending in some ways, but completely different in others. Here are some of its key features:

  • You'll usually need to find a deposit of 10%–35% of the auction property value.
  • For high-risk property you can expect to pay a higher deposit, up to 50%.
  • Some lenders will let you use another property or asset as security.
  • Auction finance is short-term, typically 1–24 months.
  • Auction finance lenders will want you to have a clear ‘exit strategy’ – a way to pay off the loan.
  • Speed is a priority – on average you'll get the funds to repay within 14 days.
  • Auction finance rates are higher than mortgage rates.
  • Your income and the property value are less important to the lender than your exit plan.
why use auction finance

What properties can you buy with auction finance?

Auction finance is purpose-built for buying auction properties. A lot of property goes up for auction because it won't sell easily or fast enough on the open market. This means you can often pick something up well below market value.

But not always. Some properties are sold at auctions because the vendor wants to secure the highest price within a fixed timescale.

auction finance and the types of property you can buy

Here are some examples of the types of situations and properties auction finance is used for.

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.

Commercial property

Commercial property 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 on later.

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.


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 and 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.


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.


How to get finance for auction property

The key to financing auction property is to do things in the right order. Anyone trying to secure auction finance will be in a much stronger position if they go to a lender with a plan, then go to the auction with a funding agreement in principle in place. Here's a quick step-by-step summary:

  • Review the market and decide on the type of property and price bracket.
  • Draw up a plan and set a budget. Be clear about your exit strategy.
  • Set aside existing funds or arrange finance for your deposit.
  • Be prepared for a basic credit check.
  • Approach a specialist auction finance lender.
  • Get an agreement in principle.
  • Find and make a winning bid for a suitable property.
  • Put down a deposit, contact your lender.
  • Complete the deal within 28 days.

How to improve your chances of getting auction finance

Bear in mind there are some things that 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 case by case.

Here are some tips to improve your chances:

Plan your exit – Take time to work out your exit strategy, with a realistic timescale and clear plan of action.

Up your deposit – Do all you can to raise a higher deposit than the minimum. This makes you less of a risk and may open up reduced interest rates.

Keep your credit clean – Some lenders steer clear of anyone with bad credit history.

Get property experience – If you don't have experience with property yourself, consider finding a partner who does.

Have collateral – Some lenders may offer better terms if you can offer another property or asset as security.

how auction finance works

Auction finance rates

The interest rate you'll pay for auction finance will be higher than for a mortgage, but in line with most bridging finance. Rates vary from lender to lender and property to property.

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. In short, this means paying interest up front, month by month or at the end when you refinance or sell the property.

Key features of auction bridging finance

  • Short-term bridging loan tailored for auction property purchase.
  • Can be pre-approved with agreement in principle.
  • Fast turnaround for completion within 28 days.
  • Suitable for non-mortgageable and foreclosure properties.
  • Can be used to buy residential, commercial or mixed-use properties.
  • Available to developers, business, investors and private individuals.
  • Income and credit history are less important than your exit strategy.
  • Loan to value ranges from 50% to 90%.
  • Existing property or asset can be used as security for improved terms.
  • Options on how and when interest is paid.

The smart way to use auction finance

As we've shown, this form of property financing is highly flexible and can open doors that would otherwise be closed. The key to making it work is to plan ahead and have a clear exit strategy which either results in selling the property or switching to long-term finance.

You might want to explore a commercial mortgage or property development loan at the same time as you look into auction financing, so you have everything in place from the start.

Start your journey by talking to iwoca, and you'll have access to expert advice not only on auction property finance but on a raft of other financial products and alternative business funding.

More on commercial property finance

Article updated on:
December 10, 2021

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Auction finance: a guide for property developers and businesses

Cash used to be king at auction houses, but savvy developers, investors and businesses have a new favourite for financing auction property purchase – auction finance.

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