Auction finance and bridging loans

Buying at auction can be a good way to secure a property, but it comes with a firm deadline. Once the hammer falls you have exchanged contracts, paid a deposit, and agreed to complete within a set period. A standard mortgage can struggle to keep pace with that timescale, and many auction lots need work before a high street lender will consider them.

That is where auction finance comes in. In most cases this means a bridging loan: short term lending that can be arranged quickly, used to complete the purchase, and then repaid by refinancing onto a longer term mortgage or by selling the property.

What auction finance is

A bridging loan is secured against property and designed to be repaid within months rather than years. Interest is often rolled up or retained, so you are not making large monthly payments while you refurbish or arrange your next mortgage. Lenders focus closely on two things: the value of the property and how you will repay them.

Bridging for an investment property is generally not regulated by the Financial Conduct Authority. Bridging secured on a home you live in, or intend to live in, is regulated, and the protections that come with regulation apply.

All lending is subject to underwriting and valuation, and the speed of any bridging loan still depends on the valuation, the legal work and the information you provide.

Get your finance ready before you bid

The best time to talk to us is before the auction, not after. If we understand the lot, your plans and your finances in advance, we can identify suitable lenders, gather your documents and in some cases obtain terms ahead of the day. That means you bid knowing roughly what finance may be available, rather than hoping it can be found in time.

Before you bid, it is worth working through these steps:

1. Read the legal pack. Check the completion deadline, any special conditions and any extra fees payable by the buyer. Your solicitor should review it with you.
2. Talk to us early. We will look at the property, your deposit and your exit, and tell you honestly whether finance looks achievable.
3. Arrange a survey if you can. Knowing the condition helps both you and the lender.
4. Set your limit. Factor in the deposit on the day, fees, refurbishment costs and the cost of the bridge itself.
5. Plan the exit. Know whether you will refinance or sell, and roughly when.

Your exit is the key question

Every bridging lender will ask how you plan to repay. For many buyers the answer is refinancing, either onto a buy to let mortgage once the property is let, or onto a residential mortgage if it will be your home. Some will sell after refurbishing.

If you will refinance, it helps to know before you buy whether you are likely to qualify. For company directors, partners and the self employed, that comes down to how lenders read your income, which is our specialism. Our page on company director mortgages explains some of the differences between lenders. If the project is larger, such as a conversion or a new build, development finance may be the better fit.

What you'll usually need

• The auction listing and legal pack
• Proof of your deposit and where your contribution is coming from
• Details of any planned works, with costs
• Your exit plan, with supporting evidence such as expected rent or a mortgage agreement in principle
• Photo ID and proof of address
• Company documents, if buying through a limited company
• A schedule of any other property you own

When bridging is not the right answer

Bridging is a useful tool, but it is not cheap, and it carries real risk if the exit falls through. If the property is mortgageable as it stands and the timescales work, a standard mortgage may cost less. If the numbers only work on optimistic assumptions about value or rent, we will say so. We would rather you walk away from a lot than bid on finance that may not be there when you need it.

What happens next

We start with a proper conversation, usually 30 to 45 minutes by phone or video, about the property, the auction date and your plans. You upload your documents once through our secure portal, and we research lenders whose criteria suit the property and your exit.

We will set out the options in plain English, including the costs, then package the application for the underwriter and keep everyone moving towards your completion date. The initial consultation is free. With auctions, earlier is always better, so get in touch as soon as you have a lot in mind.