auction home finance

How to get auction finance

26 / 10 / 22

Considering purchasing a property via auction but unsure how to finance the purchase? Or are you looking for a new auction finance lender to work with on your new auction property purchase? 

Maybe you’re just curious and researching auction finance, how it’s used and how to apply. If you’re any of the above, you’ll find this an easy read to inform you of your next step!

What is auction finance?

When purchasing an auction property, you’ll be expected to complete the purchase within 28 days on average. This can vary depending on the auction house so be sure to double check the purchase completion terms prior to bidding.

Those buying a property at auction will often have to choose an auction finance option over a traditional mortgage because of its completion speed and acceptance rate. With traditional mortgages, there is a risk of not receiving the money within the 28 days or being accepted entirely. 

Successful bidders can expect a smoother experience when opting for a short term finance which is why a bridging loan is often the preferred choice for auction winners.

How does auction finance work?

Once you’ve won the auction, you’ll need to pay a minimum of 10% of the auction purchase price to cover the deposit for the house. On top of that, you will also need to pay auction house specific fees such as admin and service fees; this will vary from auction house to auction house.

After the initial fees have been covered, you’ll have 28 days to pay the remaining 90% balance. 

Bridging finance providers will typically lend between 70 and 80% of the auction purchase price, leaving 10 to 20% of the fees uncovered. Houses purchased at auction are often in disrepair and require extensive renovation and reconstruction to be eligible for a traditional mortgage. 

Property developers who flip auction properties will often aim to borrow the maximum amount so can so they can put as much liquid cash as they can into the renovation and repairs of the property.

There are important things to remember should be unable to complete the purchase. If you do not pay the remaining balance to the auction house within the 28 days (or the deadline set by the auction house), you will be at risk of losing the property, as well as any money you’ve spent including auction fees and the 10% deposit. This is why it’s crucial to choose a lender that can complete your auction finance application within the deadline.

What properties can I buy with auction finance?

Velocity Bridging focuses exclusively on single-unit residential property cases for our auction clients. These are often the simplest deals to process and therefore the quickest to complete. 

Property auctions feature all manner of properties, however including hotels, pubs and even churches!

How to finance auction property 

“How can I apply for auction finance?”, I hear you ask. With Velocity Bridging, it’s simple. Once you’ve paid the initial deposit and auction fees, you’re ready to start your application, and in just six steps your application will be complete.

  1. Sending in your application. Visit our contact page and fill in the form with your details. Be as accurate as possible when filling in the application as this will help our decision-makers.
  2. We’ll issue your offer. Once we’ve received your application, we aim to send a DIP and other documents back to you within a few hours.
  3. Once you’ve received these documents it’s down to you to choose to accept or reject the offer. When you accept our offer, return the documents and then the countdown begins!
  4. Velocity Bridging then gets started on the legal paperwork and we’ll signal our solicitors to begin. We may also instruct a formal valuation if we think it’s necessary.
  5. We then do our typical credit and media checks, carry out the due diligence and our Lending Director will inspect the property.
  6. Finally, the legal and underwriting process comes to a close and the deal completes.

Thanks to our private funding line, we are an extremely agile lender and can get all of the above done well within the 28 day timeframe.

How we’ve helped our clients get auction finance

We’ve helped people up and down the country with the purchase of their auction property with our auction finance product. One of our clients purchased a run down property in Greater London that was in desperate need of repairs. 

The client needed assistance raising the money required to complete the purchase and got in touch with us for help.

After doing our due diligence, we were confident that the borrower would be able to raise the value of the property and comfortably sell the property to exit. We provided a gross loan of £342,000 which was 90% of the auction purchase price. 

This client took this near-derelict property and turned it into an attractive and habitable home, which is now part of a growing rental portfolio. 

Click here to learn more about this case study.

Why should I choose Velocity for auction finance?

As far as bridging lenders go, we’re pretty unique. People choose us because we’re quick to respond and quick to complete, we have access to private funding and we do anything within our power to cater to your business finance needs.

Having access to private funds makes a world of difference when it comes to the speed of your application and getting your funds secured. Because we’re privately owned and privately funded, we’re able to make a decision about your application within minutes.

You can borrow up to £500,000 towards your auction purchase. Learn more about the benefits of private funding here.

We’re a personable bunch with years of expertise in the field of finance, spanning a range of industries and sectors. Meet the team and find links to our personal LinkedIn profiles on our Team page.

And if you want to learn more about why people choose us and how we’ve helped our clients, have a read of our Case Studies

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