An auction bridging loan is a short-term, interest-only loan designed to facilitate the purchase of property or land at auction. These loans are specifically designed to meet the unique needs of auction purchases, where prompt access to funds is crucial. Typically, buyers are required to pay a 10% deposit on the day of the auction, with the remaining balance due within 28 days of the auction. Auction bridging loans provide the necessary capital to complete the purchase within this tight timeframe.

Mortgages are great products for financing property purchases, but they take time to arrange, which is why buying houses on the open market can take months, especially in the UK, where you can end up in a long property chain. When land or property is auctioned, the buying process is set up completely differently than for open market transactions, and the focus is speed for both the buyer and the seller. Auction bridging loans are designed specifically so you can use them to finance property sold at auction, which means it's a financing product that provides a lump-sum payment and allows you to draw down funds quickly.   

If you want to buy property at auction, you will need to have a deposit that you can pay immediately if you place the winning the bid. At minimum, this will be 10% of the purchase price, but it can be more, especially if you want to develop the property or site. You'll then have about 28 days to transfer the remaining funds to complete the sale. You'll usually do this via an auction bridging loan. If you can't meet the deadline for payment, you will lose your deposit. 

We can arrange auction finance very quickly. If you're looking at an auction bridging loan before the auction, which we recommend, we can organise in principal offers for you through our network in around a week or so, so you have finance ready before the auction. When you have an in principal offer before the auction, you'll be ready to draw down funds in just a few days if you win the bid. In cases when you don't win the auction, we can simply inform the lender – lenders are used to this, and you won't be penalised for it in any way. 

Auctions are a great way of buying property and land. Many people think that purchasing auction property is only about buying derelict, problematic or undervalued real estate. However, in reality, vendors will sell lots of different types of property at auction for various reasons. 

Speed

One of the main advantages of auctions is that you can complete property transactions quickly. Usually, the sale is completed 28 days after the auction, making it a great way for sellers to dispose of property quickly and for buyers to complete a purchase faster than they would through the traditional sale process. Using auction bridging loans facilitates these speedy transactions.

Capital

While some property and land sold at auction will be undervalued or a bargain, you won't necessarily want to use up your cash reserves to make these purchases. Using your own capital means you might use up your working capital or have little funds left to fund your day-to-day living expenses. This means you won't have liquidity available for other purchases, investments or projects, or you might not have a buffer of cash to fund any unexpected challenges or liabilities. Using auction capital is a way to ensure you have liquidity available if you need it.

Buy property you can't finance any other way

Lots of the property that comes and gets sold at auction is complex in some way, and lots of it is unmortgageable. Sellers use auctions to dispose of this type of property, given it is usually challenging to handle a sale any other way. This doesn't mean it's not a quality investment but is more a case of needing to spend time (and usually capital) to fix. When these types of properties are sold at auction, you can use the loan to buy the property – auction bridging loans can also cover development work, so you can use the finance to make the property mortgageable, meaning it is easier to refinance, rent or sell on at a profit. 

To buy property at auction and develop it

You can either use auction finance to buy property or purchase real estate and then finance its redevelopment or refurbishment. Here, the amount that you borrow will cover the cost of the property and what you will need to develop it, meaning you don't need to use your own capital to cover these costs upfront. It's important to note that in these cases, you will usually need to put down a larger deposit than in cases where you do not need to develop the property. Lenders may also require a larger deposit from first-time developers. 

You can use an auction bridging loan to finance any property or land sold at auction – lenders don't fix criteria for what kind of property or project you can take on. Both businesses and individuals use auction bridging finance to purchase residential real estate, land, mixed-use properties, developments and commercial property. 

If you want to buy property or land at auction, the main types of property you can finance are:

• A property that an owner can't dispose of via usual channels due to short leasehold, because it's an unmortgageable property, it has a complicated ownership structure, there have been past legal issues, etc.
• Properties that are going through the foreclosure process or when a seller can't afford the mortgage and needs to dispose of the property quickly
• A property that's sought-after because it represents a great investment opportunity. This might be because it has a history of delivering great revenue or ROI. This is especially common with commercial and mixed-use properties that have been successfully rented for a long time
• Properties that need to be redeveloped or refurbished, often quite significantly
• Commercial property (warehouses, office space etc.), mixed-use property or land
• Development projects

If you are a business owner, you may want to utilise auction finance to buy commercial property, residential or commercial investment property, mixed-use property, development sites or land that is up for auction. Commercial properties and developments are auctioned regularly, and they are a great way to expand a commercial property portfolio or buy premises or office space. You'll usually use auction loans to facilitate the quick purchase of property and manage cash flow, as you won't have to use your company's working capital to finance the loan. Businesses will usually refinance or repay the loan using accrued capital at term.

If your business wants to purchase premises via an auction bridging loan or if you are a business owner expanding your real estate portfolio, you'll need to showcase how the property will support your business's continued financial success. The more you want to borrow, the more important this will be.

Auction bridging loans are specifically intended for purchasing property or land at auction. In some cases, the loan can also cover the cost of developing the property if extensive renovation or remodelling work is planned. This makes auction bridging loans a versatile financing option for property investors and developers looking to acquire auction properties and undertake subsequent development projects.

The speed of obtaining an auction bridging loan can vary depending on the lender and the complexity of the application. However, many lenders can arrange auction bridging loans within a few days to a week. It's advisable to initiate the application process well in advance of the auction to ensure timely access to funds.