Auction finance explained

Auction finance is a short term loan that lets you buy a property at auction and complete within the usual 28 day deadline, even though a standard mortgage would take too long to arrange.

Buying a property at auction can be a fantastic opportunity for small business owners. Whether you’re looking for new premises, an investment property, or a development project, auctions often offer unique deals you won’t find on the open market. The challenge? Auctions move quickly. When the hammer falls, you usually need to pay a deposit immediately and complete the purchase within 28 days. That’s where auction finance comes in.

What is auction finance?

Auction finance is a type of short term bridging loan designed to cover the gap between winning a bid and arranging a longer term repayment plan. Because auction properties must usually be paid for within 28 days, a standard mortgage application will not complete in time. Auction finance gives you fast access to the money so you can complete the purchase, then you repay it once you have arranged a mortgage, sold the property or found another longer term solution.

Auction finance is almost always structured as a bridging loan, a short term facility that bridges the gap until your longer term finance is in place. Key features include:

• Fast access to funds, often within days of a successful bid

• Short loan terms, typically up to 12 to 18 months

• Flexible repayment, so you can exit once your mortgage, sale or refurbishment plan is ready

• Loan to value of up to 70% to 75% in most cases, with some lenders stretching further for strong applications

Auction finance is not usually available at 100% of the purchase price. Most lenders cap borrowing at 70% to 75% loan to value, so you will need to fund your deposit and any shortfall between the loan and the purchase price yourself.

How does auction finance work?

Unlike a business loan, which can take months to arrange, auction finance is designed to be streamlined. The process usually looks like this:

1. Pre approval: before the auction, you get an agreement in principle from a lender, confirming how much you can borrow

2. Winning the bid: at the auction, you pay a 10% deposit immediately after a successful bid

3. Accessing funds: the lender completes its checks and releases the loan, often within a few working days

4. Completion: you pay the remaining balance and complete the purchase within the usual 28 day deadline

5. Repayment: you repay the loan by refinancing onto a longer term mortgage or by selling the property

Because a standard mortgage cannot usually complete within 28 days, auction finance is what makes it possible to buy at auction in the first place.

What can auction finance be used for?

Auction finance is commonly used to purchase a variety of property types, including:

• Residential homes

• Buy to let investments

• Commercial buildings

• Land

It is also suitable for properties considered unmortgageable in their current condition, for example when significant refurbishment or structural work is needed. Buyers often use auction finance to secure the property quickly, then repay the loan by refinancing onto a mortgage or a development finance facility once the works are done, or by selling the property.

Who can use auction finance?

Auction finance is not limited to seasoned property investors. A wide range of buyers use it, including:

• Small business owners buying new premises

• Developers looking for refurbishment opportunities

• Investors building a property portfolio

• First time buyers who need help meeting auction timelines

What interest rates can you get with auction finance?

Auction finance usually carries higher interest rates than a standard mortgage because it is short term and arranged quickly. Monthly rates typically range from 0.5% to 1.5%, and total costs, including arrangement and exit fees, usually add up to 3% to 8% of the loan amount over a six month term.

Borrowers with a strong track record, a lower risk profile or a larger deposit are more likely to secure rates at the lower end of this range. First time buyers, or those funding a property in poor condition, tend to see higher costs.

Because these loans are temporary, most buyers refinance soon after completion. Long term products such as buy to let, commercial or residential mortgages generally offer much lower rates. See our guide to bridging loan rates for a fuller breakdown of what you might pay. You can also use our bridging loan calculator to model how different interest rates and terms can affect your repayments.

The auction process: key steps and timelines

Speed matters at every stage of a property auction. Here is how the process usually unfolds and where auction finance fits in.

You can browse upcoming lots through platforms such as Auction House UK, Savills Auctions and EIG Property Auctions.

If you do not complete within 28 days, you will usually forfeit your 10% deposit and may be liable for further costs from the seller. This is why arranging auction finance, or at least an agreement in principle, before you bid matters so much.

What are the benefits of auction finance for small business owners?

For small business owners, auction finance is not just about bridging a funding gap, it can be a powerful way to unlock opportunities that would otherwise be out of reach. Key benefits include:

• Speed: auctions move fast, and so does auction finance. Funds can often be arranged within days, letting you complete purchases that would be impossible with a standard mortgage

• Confidence: with pre approval in place, you can step into the auction room knowing exactly what you can afford, so you can bid with certainty rather than hesitation

• Flexibility: auction finance is designed as a short term solution, giving you breathing space to arrange longer term funding or sell the property once your plans are in motion

• Opportunity: many properties at auction never reach the open market, so auction finance gives you the chance to secure a new business premises, an investment property or a development project that you would otherwise miss

What costs and risks should you be aware of?

The table above covers the fees you will pay, but cost is not the only factor to weigh up before you borrow. It is worth thinking through:

• Refinancing risk: if you cannot arrange longer term finance or sell the property within the loan term, you could face penalties, additional interest or, in the worst case, lose the property

• Valuation risk: if the property values lower than expected, your available loan amount will fall and you may need to find additional funds

• Legal and survey costs: as with any property purchase, professional checks are essential and add to your overall spend

• Deposit risk: if you miss the 28 day completion deadline, you will usually forfeit your 10% deposit

The key to avoiding problems is having a clear repayment strategy before you borrow. When used with the right plan, auction finance can be a smart tool. Without one, it can quickly become expensive.

How can Capitalise help with auction finance?

At Capitalise, our funding specialists work with a panel of 130+ lenders to help you access the right auction finance for your purchase. We take the time to understand your timeline and budget, then match you with a bridging loan provider that can move at auction speed.

With auction finance, we can help you:

• Get an agreement in principle before you bid, so you know your budget with confidence

• Match you with a bridging loan lender suited to your property type, deposit and exit plan

• Support your move onto a longer term mortgage once the purchase completes

Ready to bid with confidence? Apply for auction finance and our funding specialists will find the right lender for your purchase.