Buying at auction can be a great way to secure property at a competitive price, but it comes with a big challenge: speed. Unlike a standard purchase, where you might have months to complete, auction purchases usually require completion within 28 days. That’s where auction finance steps in.
1. What is Auction Finance? 🔨🏠
Auction finance is a short-term loan, often structured like bridging finance, designed to provide funds quickly so buyers can complete auction purchases on time.
2. Why Do Buyers Use Auction Finance?
- Speed: Traditional mortgage applications often take too long.
- Condition of property: Many auction lots are unmortgageable (derelict, no kitchen/bathroom, structural issues).
- Flexibility: Allows investors to buy, refurbish, and then refinance or sell.
3. How Does it Work?
- Agreement in principle often before the auction.
- Funds can be drawn down in as little as 7–14 days.
- Typically up to 70–75% of the property’s value or purchase price.
- Terms usually range from 3 to 12 months.
- Exit strategy is crucial, usually via refinance or sale.
4. Benefits ✅
- Ensures you meet auction deadlines.
- Allows purchase of properties not eligible for traditional mortgages.
- Enables investors to act quickly and competitively.
- Provides breathing space for refurbishment before refinancing.
5. Risks & Considerations ❌
- Interest rates and fees are higher than standard mortgages.
- You’ll need a clear and realistic exit plan.
- Legal and valuation fees can add up.
- Failure to complete within the auction deadline risks losing your deposit.
6. Top Tips for Auction Buyers 📝
- Get finance pre-approved before bidding.
- Always do due diligence on the property (legal pack, surveys if possible).
- Factor in costs: finance, renovation, legal, auctioneer fees, stamp duty.
- Don’t overbid, remember the lender’s valuation may differ from your purchase price.
Key Takeaway
Auction finance provides the fast, flexible funding needed to capitalise on opportunities at auction. With the right preparation and a solid exit strategy, it can be a powerful tool for investors and developers. But go in with your eyes open, speed and risk go hand in hand.
