What is auction finance and how does it work?
Auction finance is a short-term funding solution that allows UK businesses and property investors to purchase property at auction within the tight completion deadlines that auctions demand. When the hammer falls at a UK property auction, the winning bidder is legally required to complete the purchase within 28 days. Standard mortgage applications take far longer than this, which is why most auction buyers rely on specialist bridging finance instead. Specialist bridging and short-term property lenders on Fundably’s 50+ lender panel, including Lendco, can release funds within 7 to 21 days, well within the auction deadline.
The process works in two stages. First, you secure an agreement in principle (AIP) from a bridging lender before the auction. This confirms how much you can borrow and gives you the confidence to bid. Second, once you win the lot, the lender completes its due diligence and releases the funds in time to meet the 28-day deadline.
How much does auction finance cost?
Auction bridging loans are priced differently from standard mortgages. Here is what to expect:
- Interest rates. Typically 0.5% to 1.5% per month, depending on the loan-to-value (LTV) ratio, the property type and the borrower’s experience. Interest is usually charged monthly or rolled up and paid at the end of the loan term.
- Arrangement fees. Most lenders charge 1% to 2% of the loan amount as an arrangement or facility fee.
- Valuation and legal fees. You will need a valuation of the property (often £500 to £1,500) and solicitor fees for both you and the lender.
- Exit fees. Some lenders charge a fee when the loan is repaid. Others do not. Always check this before committing.
Because bridging finance is short-term, the total cost is usually manageable provided you have a clear and realistic exit strategy. A 12-month bridge at 0.75% per month on a £200,000 loan, for example, costs £1,500 per month in interest before fees.
All rates and fees shown are indicative only and subject to individual lender assessment. The terms your application receives will depend on the property type, loan-to-value ratio, your exit strategy and the lender’s own criteria.
What types of property can you buy at auction with bridging finance?
Auction finance can be used for a wide range of property types, including:
- Residential houses and flats (including those needing refurbishment)
- Buy-to-let investment properties
- Commercial premises such as offices, shops and warehouses
- Mixed-use properties with both residential and commercial elements
- Land with or without planning permission
- Properties that are unmortgageable in their current condition (fire-damaged, no kitchen or bathroom, structural issues)
This last point is important. Many properties sold at auction are in a condition that high-street lenders will not touch. Bridging lenders are far more flexible because they assess the property’s potential value after works, not just its current state.
What are the benefits of using auction finance?
Speed of completion. Bridging lenders can release funds within 7 to 21 days, well within the 28-day auction deadline. Some can complete in as little as 5 working days for straightforward cases.
Ability to bid with confidence. With an AIP in place before the auction, you know exactly what you can afford. This removes the uncertainty that causes many bidders to hesitate or miss opportunities.
Access to below-market-value deals. Auctions often feature properties at prices below open market value. Bridging finance lets you act quickly on these opportunities, which would otherwise be lost to cash buyers.
Flexible loan structures. Terms typically range from 1 to 18 months, and lenders can structure repayments around your planned exit. If you intend to refurbish and sell, for instance, the lender can roll up interest so you make no monthly payments during the works.
What should you check before bidding at a property auction?
Preparation is essential. Follow this checklist before auction day:
- Get an agreement in principle. Speak to a broker or lender and obtain an AIP that confirms your borrowing capacity. Fundably can arrange this through its network of bridging lenders, often within 24 hours.
- Review the legal pack. Every auction lot has a legal pack containing the title deeds, searches, leases and any special conditions of sale. Have your solicitor review this thoroughly before you bid.
- Inspect the property. Visit the property in person if possible. Bring a builder or surveyor if you plan to renovate, so you can estimate refurbishment costs accurately.
- Budget for the full cost. Your budget must cover the purchase price, stamp duty land tax, legal fees, valuation costs, lender arrangement fees and any planned renovation. Do not bid at a level that leaves no margin for unexpected costs.
- Define your exit strategy. Lenders will ask how you plan to repay the bridge. The most common exits are refinancing onto a standard mortgage or selling the property. Make sure your exit is realistic within the loan term.
- Understand the auction terms. Most auctions require a 10% deposit on the day (paid by banker’s draft or debit card) and full completion within 28 days. Some modern or online auctions allow 56 days. Confirm the terms for your specific lot.
Can you get auction finance with bad credit?
Yes, in many cases. Bridging lenders focus primarily on the property’s value and the strength of your exit strategy rather than your personal credit score. While a clean credit history will give you access to the best rates, borrowers with CCJs, defaults or a thin credit file can still obtain auction finance. Rates may be higher, and the maximum LTV may be lower, but funding is often available where mainstream lenders would decline.
How Fundably helps you secure auction finance
Auction timelines leave no room for delays. Fundably’s 50+ UK lender panel includes specialist bridging providers, and we can arrange an agreement in principle before auction day, giving you the certainty you need to bid. Once you win a lot, we move quickly to complete the full application and get funds released well within the 28-day window.
The initial matching uses a soft credit check, which does not affect your credit score and is not visible to other lenders. A hard check only happens if you proceed with a specific lender’s offer. Because Fundably compares options across multiple lenders, you benefit from competitive rates and terms rather than being limited to a single provider. As a commercial finance broker and NACFB member, we handle the paperwork, coordinate with solicitors and valuers and keep the process on track so you can focus on your investment strategy.
Whether you are buying your first auction property or adding to an existing portfolio, the process starts with a quick eligibility check that takes around five minutes and has no impact on your credit score.
Check your eligibility and arrange auction finance now