Auction finance is short term finance to assist buyers to purchase a property at an auction, normally with the intention of refurbishing it to increase the value to sell or remortgage and rent out. This is processed in the form of a short-term loan (STL), also known as a bridging loan.
If successful at an auction, the deposit (normally 10%) is payable and you must then complete the purchase normally within 28 days and a bridging loan can help you do this, you are advised to always source your funding before going to an auction.
Lenders can instruct valuers and solicitors the same day if you already have an Agreement in Principle in place, it makes the process much smoother. You also know that you are going to the auction with pre-agreed, credit-backed funding.
Some people go to auctions, buy a property and then worry about how they are going to pay for it – which could make it harder for them because there could be credit or funding issues. All of this could be avoided by working with your broker to source finance ahead of time. Certain lenders will offer auction finance without a valuation. They will use an online valuation system and will lend on satisfactory results of this.
For more information, read our Guide to Auction Finance.
We also have an article that busts myths about buying properties at auction. The top three myths we review are:
- You can just turn up at an auction and buy a property.
- Buying properties at auction is harder because you cannot get finance and you need to pay everything on the day of the auction.
- If I get a loan to buy a property at auction that is going to hit my cash flow because I’m going to have to pay it back every month.