Auction Finance Explained for Beginners

Property can be found at great prices at auction, but not every investor has the cash at hand in order to benefit from these deals. Auctions have a very high sales rate, and you can find some bargains if you are looking to invest in property.

According to figures, approximately 18,000-20,000 residential properties sell via auction each year. Some of the best deals can be found in these sales. The key to buying a great property at auction is speed, as many bidders will be vying for the same deals. Mortgages and loans are often slow to get started with, so many investors rely on auction finance. (Source: MT Finance)

How does auction finance work?

Auction finance is a fast loan that enables you to competitively bid for a property in an auction. 

In retail auctions, the winner of the bid is required to pay 10% of the property’s overall cost upfront. The remaining 90% of the property’s value must be paid off in a steep 28-day period. This can be a problem for investors looking to start out, but without immediate access to the money needed.

Auction finance provides funding within this 28-day period, so investors do not risk losing the bargains they recently won at auction. Unlike traditional mortgages, borrowers are not hindered by delays or administration. They are able to seal the deal quickly and effectively.

Who is auction finance for?

Auction finance is perfect for investors looking to get into auction real estate but who do not have the hundreds of thousands of pounds ready to go. 

According to the FCA, if bidders do not pay back the entire price of the auctioned property in 28 days, they not only lose the property but also the 10% deposit paid on the auction day. Bidders who are struggling to pay in those 28 days would benefit from auction finance.

Auction finance can usually be funded entirely in 2 to 4 weeks, if not sooner, if borrowers have prepared their applications beforehand. 

Am I eligible for auction finance?

If you are a UK-resident who can provide plans and information about the property you are purchasing, you have a good chance of being eligible for auction finance.

Lenders typically require some information about your situation before they can approve your application. For example, they might want to know about the property you have purchased, or intend to purchase, such as its current state and value, as well as your plans for it. 

Some lenders are even willing to consider self-employed individuals, or even individuals with little or adverse credit histories.

Should I apply for auction finance before the auction happens?

Yes, this will help but is not obligatory. If you apply for auction finance before the date of the auction, your lender can offer you precise terms, as well as informing you what your maximum bid ought to be. Allowing your loan to be pre-approved can mean you are able to proceed very quickly come the day of the auction.

However, pre-applying is not an absolute necessity. You always have the option to apply for auction finance after the bid has been won.



Alex is the co-author of 100 Greatest Plays, 100 Greatest Cricketers, 100 Greatest Films and 100 Greatest Moments. He has written for a wide variety of publications including The Observer, The Sunday Times, The Daily Mail, The Guardian and The Telegraph.

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