What is auction finance and how does it work?

Auction finance is a great way for property developers to secure a bargain, often from a motivated seller. Auctions are a great place to start if you are a first-time developer, providing you have the right expectations from the beginning.

Buying a property at auction is very different to a typical property purchase. Completions happen much faster, so it often pays to arrange your finance before the auction gets into full swing. Auction purchases generally have to be completed within 28 days of the auction. In most cases, a conventional mortgage cannot be arranged (if the property is not habitable) or will not be available within that time period.

While the impact of COVID-19 may not have been entirely negative regarding the property market as a whole, the closure of some businesses has meant that more properties and buildings have become vacant. Auction purchases are looking to be a big trend for 2021 as investors are now using this opportunity to expand their property portfolio. Buying at auction means you need to have the funding ready, and this is where auction finance comes in.

What is auction finance and how does it work?

If you make the winning bid at an auction, you’ll usually have to pay a non-refundable deposit on the day, and you’ll have 28 days to pay the balance. Therefore, auction finance needs short-term funding that can be arranged quickly enough to fit the purchasing timescales of the auction house. Auction finance can be used so that buyers can walk into an auction room with an agreement in principle and have clear budgets in mind.

What sort of properties can be bought with auction finance?

Residential property

Whether you are buying to renovate and sell on or rent out, many landlords buy properties through auction finance because a buy-to-let mortgage takes much longer to arrange. They then look to refinance at a later stage.

Mixed-use property

Also known as semi-commercial property, there are auction finance options for premises that are part commercial and part residential such as shops and offices with flats above.

Commercial property

 Shops, offices, restaurants, pubs, leisure centres, industrial units, warehouses – we can help find the right sort of finance to purchase any commercial property. Funding is available for investors and business owner-occupiers.

Need advice?

If you’re looking to secure funding for your project, fill in our contact form today and one of our advisers will be in touch.