When the hammer falls at auction the purchase is binding, and completion is normally due within 28 days. Auction bridging finance is short-term, property-secured lending arranged at the pace that deadline demands.
How auction bridging finance works
Auction finance is bridging finance. The product is the same; the differentiating factor is lender choice. When you buy a property at auction you have 28 days from the day of the auction to complete. There are exceptions - some auction houses allow slightly longer - but in most cases you need a bridging lender that can turn a case around inside that window, and certain lenders work much faster than others. Provided there are no complicating issues with the property, your credit or the wider case, those are the lenders we approach first.
The valuation is often where the time is saved. Depending on the loan-to-value and the strength of your wider portfolio, some lenders will use a desktop valuation: they run online checks against the property and generate a comfort score, and if the auction price is in line with what their data says, nobody needs to inspect it physically. Removing the site visit takes days out of the timetable.
As with all bridging, interest is rolled up rather than serviced monthly. There are no payments during the borrowing period, which leaves your cash free for preparing the property for resale or refinance.
Who it's for
Auction finance is for anyone who cannot - or would rather not - buy in cash. With 28 days to complete, a standard term mortgage is not a realistic option; the application simply cannot move that quickly. Unless you are a cash buyer, auction finance covers the part of the purchase your deposit does not.
The property itself usually rules a term mortgage out in any case. It is rare to see an auction lot that is habitable on day one. Most are sold at auction precisely because they need work - disrepair, conversion, shell condition, missing windows and doors - or they are plots of land awaiting development. Until that work is done the property is unlikely to be mortgageable, so a bridge funds the purchase and the refurbishment, and a sale or term mortgage provides the exit once the property qualifies.
Costs and fees
Fee structures vary by lender but tend to be similar in shape. Expect an arrangement fee of around 1.5% to 2%, with interest typically between 0.5% and 1% per month depending on your loan-to-value - rolled up and included in the total repayable amount. Rates move with the market, so we quote against your actual case rather than a headline figure.
Some lenders charge exit fees; some do not. More common is a minimum term built into the loan. Bridging is pay-for-what-you-use - take a loan over twelve months, repay after six, and you pay six months' interest - but a lender repaid after one month has made very little, so many build in a minimum term of three months. Borrow today and repay tomorrow, and you still pay for three months. If your project will turn around quickly this matters: we look for a lender with no exit fee and no minimum term.
On top sit legal fees and the valuation. As a planning figure, allow around £1,000 for your own legal costs on a bridging loan - and since you also pay the lender's costs, roughly £2,000 in total, assuming no other complexity. The valuation cost depends on the value of the property itself, and where several properties are involved we can sometimes negotiate those costs down.
The process
The best time to involve us is before the auction, not after you have won. Most clients send us the auction listing in advance - the lots they are considering and how high they are prepared to go. We have seen a great many auction projects, profitable and loss-making, so we can give an early view on whether a project looks viable, and how it fits your goals if you are weighing a quick sale against long-term retention and yield.
For each lot we prepare illustrations showing what the finance would cost, including what happens if bidding goes above the guide price. A property might be listed at a guide of £100,000 when you believe it will go to £120,000; knowing what the finance looks like at both figures means you enter the room with your ceiling already set.
We map the exit at the same time. Whether you plan to refinance or sell, we show you what the position looks like in twelve months' time - current and future finance laid out together, with a clear picture of costings and likely profitability before you bid. Once you have won the lot, we take the chosen lender, valuation and legals through to completion inside the deadline.
Frequently asked questions
How quickly can auction bridging complete?
Inside the 28-day auction window - that is the test the lender is selected against. The exact timetable depends on the lender, the valuation method and how quickly the legal work progresses, which is why instructing solicitors and supplying documents early matters as much as the lender choice.
What is a desktop valuation?
A valuation made without a physical inspection. The lender runs online checks against the property and generates a comfort score; if the auction price is consistent with its data, no surveyor visit is needed. Availability depends on the loan-to-value and the strength of the case, and it can save days.
Can I buy at auction without putting cash in?
Sometimes, if you hold equity elsewhere. Where properties in your portfolio are mortgaged at, say, 30% to 50% loan-to-value, that unused equity can be put to work through a cross-charge, or cross-collateralisation. On a £100,000 auction purchase where the lender advances 65%, you would normally need to find a £35,000 deposit - but the lender can instead take a charge over the auction property and a second charge over your existing properties (or a first charge if they are unencumbered), so the equity covers the deposit and you put no cash into the purchase.
What if I repay the bridge early?
You generally pay only for the months you use, subject to any minimum term - commonly three months. If your plan is a fast turnaround, tell us at the outset and we will target lenders without minimum terms or exit fees.
When should I speak to a broker?
Before the auction. With illustrations in hand you know your maximum bid, your costs and your exit before the bidding starts - and the finance can move the moment the hammer falls.
Talk to an adviser
Tell us the lots you are watching, your budget and your intended exit, and we will set out what the finance looks like before you bid. Call 020 7126 8574 or request a call back.
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Your property may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it. Most bridging loans on investment property are not regulated by the Financial Conduct Authority.
To put numbers to your own scenario, use our bridging loan calculator — it estimates interest, fees, net advance and LTV.
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