Auction Finance – The Complete Guide to Funding Property Auctions
Everything you need to know about Auction Finance — from how it works to the latest rates, eligibility rules, and fast approval tips
Introduction: Why Auction Finance Matters
Property auctions have surged in popularity across the UK, giving buyers access to everything from repossessions and probate properties to unique investment opportunities that may never hit the open market. Auctions are attractive because they offer transparency, speed, and potential bargains. When the gavel falls, the property is yours — and unlike private treaty sales, there is no endless chain of buyers and sellers to hold things up.
But that speed also creates a funding challenge. At most auctions, you are required to pay a 10% deposit on the day and complete the purchase within 28 days. Traditional mortgages rarely fit this timescale. They require lengthy underwriting, valuations, and extensive checks, often taking six to twelve weeks.
That’s where auction finance — usually in the form of an auction bridging loan — comes in. Auction finance gives you the ability to secure the property quickly, complete within the deadline, and then refinance or sell on your own terms. It’s the go-to solution for investors, landlords, and developers who need certainty and speed in competitive auction environments.
What is Auction Finance?
Auction finance is short-term property funding designed specifically for buying at auction. It is almost always structured as a bridging loan — a fast, flexible type of secured lending that “bridges the gap” until you arrange longer-term finance or sell the property.
Unlike a mortgage, which is slow and requires properties to be in a mortgageable condition, auction bridging loans are designed to be fast, flexible, and property-focused. Lenders are more interested in the value of the asset and your exit strategy than your long-term affordability profile.
Key differences between auction finance and traditional mortgages:
Speed: Auction bridging can complete in as little as 48 hours, whereas mortgages typically take weeks.
Condition: Bridging lenders can finance properties that are uninhabitable or unmortgageable, such as those without kitchens, bathrooms, or with structural issues.
Flexibility: Loans can be secured against a wide range of property types — residential, commercial, mixed-use, or even land with planning potential.
Exit: Auction finance is short-term, usually 6–18 months, with repayment made through sale or refinance.
For anyone bidding at auction, having auction finance arranged in principle gives you the confidence to bid competitively, knowing you can complete the purchase within the deadline.
How Auction Finance Works Step by Step
Buying at auction involves a compressed timeline, and understanding how the finance works is crucial. Here’s how the process typically unfolds:
1. Preparing Before the Auction:
The key to success is preparation. Before you step into the auction room (or log in online), you should:
Get a Decision in Principle (DIP) from a specialist bridging lender or broker. This shows how much you can borrow and under what terms.
Check the lender’s criteria — auction finance is available on a wide range of properties, but knowing the parameters upfront avoids wasted time.
Arrange proof of funds for the 10% deposit, which you will need to pay immediately if you win.
2. Bidding and Paying the Deposit:
Once you place the winning bid, the auctioneer will ask for a 10% deposit upfront (usually by banker’s draft, debit card, or bank transfer). This is legally binding — you are committed to completing.
3. Legal Pack Review:
Every auction lot comes with a legal pack prepared by the seller’s solicitor. Reviewing this before the auction is essential. It contains the title deeds, searches, special conditions, and other legal details. Bridging lenders will usually want to see this too.
4. Bridging Loan Application:
After winning, your broker submits the full application to the lender. With auction finance, this process is streamlined:
Property valuation: Many auction purchases can be completed using desktop or AVM valuations, cutting days from the process.
Underwriting: Lenders focus on the asset value and your exit strategy rather than in-depth income checks.
Legal work: Solicitors act quickly to draw up loan documents and register the lender’s charge.
5. Completion within 28 Days:
Auction finance allows you to draw down funds within days, ensuring you meet the 28-day completion deadline. In many cases, lenders can complete even faster if the deal is straightforward and valuation criteria are met.
6. Repaying the Auction Loan (Exit Strategy):
Auction finance is temporary. Repayment is usually achieved in one of two ways:
Refinance to a mortgage once the property is improved or ready for long-term letting.
Sale of the property, if you purchased at a discount and plan to flip.
The key is to have a clear, realistic exit strategy before bidding — lenders will require this as part of your application.
Advantages of Auction Bridging Loans
Auction bridging loans are popular for good reason: they solve the single biggest challenge of buying at auction — the tight 28-day deadline. But their benefits extend beyond just speed.
Speed of Execution:
With auction finance, applications can be approved in as little as 24–48 hours, and funds can be released within a matter of days. Compare this to traditional mortgage applications that can take 6–12 weeks, and it’s clear why bridging loans dominate auction purchases.
Certainty of Completion:
Auctions are unforgiving. Fail to complete on time and you’ll lose your deposit — often tens of thousands of pounds — and potentially face legal action. Auction finance provides the certainty of funds you need to avoid that nightmare scenario.
Flexibility on Property Condition:
Mortgage lenders often refuse properties deemed “unmortgageable” — for example, homes without working kitchens or bathrooms, or those requiring significant refurbishment. Auction finance doesn’t impose the same restrictions. Lenders are prepared to fund properties in poor condition, giving investors the chance to buy at a discount and add value.
Broad Security Options:
Auction finance can be secured not only against the property being purchased but also against additional properties in your portfolio. This “cross-charge” option allows higher borrowing limits and makes finance possible even where the auction property itself is difficult to lend against.
Fast-Track Refinancing Potential:
Many investors use auction finance to bridge into longer-term borrowing. For instance, you might buy an uninhabitable house, carry out light refurbishment, and then refinance onto a buy-to-let mortgage at a higher valuation — releasing profit and repaying the bridge.
Challenges & Risks of Auction Finance
While auction bridging loans are invaluable, they are not without challenges. Understanding the risks ensures you make informed decisions and structure deals carefully.
Higher Interest Costs
Auction bridging loans are short-term and carry higher monthly interest rates than mortgages. While competitive, they are priced for speed and flexibility, often between 0.65%–1.2% per month. For short terms (6–12 months), this is manageable — but costs can spiral if you fail to exit on time.
Exit Strategy Pressure
Your lender will want to see a clear repayment plan. Whether refinancing to a mortgage or selling the property, you need certainty. If your exit falls through — for example, if you cannot refinance due to credit issues or the property not meeting lender criteria — you risk defaulting.
Overbidding at Auction
The excitement of bidding can lead buyers to overpay. Bridging lenders base lending on valuation, not hammer price. If you bid above market value, you’ll have to cover the shortfall from your own funds.
Fees and Costs
Besides interest, there are arrangement fees, legal fees, and sometimes exit fees. These need to be factored into your calculations when working out the profitability of the deal.
Risk of Delays
While auction finance is fast, delays can still occur if the legal pack has issues, the property is unusual, or the valuation flags concerns. Having an experienced broker helps mitigate this risk by pre-checking cases before auction day.
Case Study: Using Auction Finance to Secure a Property
Scenario:
An investor spots a two-bedroom terraced house in Birmingham listed at auction with a guide price of £90,000. The property needs refurbishment — no working kitchen and damp issues — making it unmortgageable in its current state.
The Challenge:
A 10% deposit (£9,000) is required immediately at auction.
Completion is due within 28 days.
No mortgage lender will touch the property until it is habitable.
The Solution:
The investor arranges auction finance through Aura Capital.
A bridging lender offers 70% loan-to-value (LTV) based on a valuation of £100,000, lending £70,000.
The investor uses £20,000 of their own funds to cover the balance and costs.
The Exit Strategy:
Over three months, the investor spends £15,000 on refurbishment.
The property is revalued at £140,000.
A buy-to-let mortgage at 75% LTV raises £105,000.
The investor refinances, repays the £70,000 bridging loan plus interest and fees, and releases surplus capital for the next project.
Result:
Without auction finance, the investor couldn’t have bought the property. With it, they secured a bargain, added value, and created long-term rental income.
Eligibility & Lender Criteria
Auction bridging loans are designed to be flexible, but each lender has criteria. Here’s what to expect:
Loan Sizes: Typically from £50,000 up to £25 million, depending on lender appetite and property type.
Terms: 3–18 months, with most loans repayable within a year.
Loan-to-Value (LTV): Usually 65%–75% of property value. Some lenders allow higher LTVs with additional security.
Property Types: Residential, commercial, mixed-use, land with planning. Properties in poor condition are accepted if there’s a viable exit.
Credit History: Adverse credit is often acceptable — lenders focus more on the asset and exit strategy.
Security Options: First charge on the property, or second charges on existing property portfolios to raise higher amounts.
This flexibility makes auction finance accessible to both experienced investors and first-time buyers entering the auction market.
Alternatives to Auction Finance
While auction bridging loans are the most common solution, they’re not the only option. Buyers should understand the alternatives — and why bridging usually wins.
Cash Purchases
The simplest way to buy at auction is cash. If you have the funds ready, you avoid borrowing costs and can complete immediately. But for most investors, tying up large sums in a single property limits flexibility. Auction finance allows you to leverage your capital across multiple deals.
Private or Peer-to-Peer Lenders
Some investors use private lenders or peer-to-peer lending platforms. These can sometimes offer competitive rates, but they lack the speed and certainty of established bridging lenders. Auction timelines leave little room for delay.
Development Finance
When a property requires extensive renovation or ground-up construction, development finance may be more appropriate. Some investors combine auction bridging with development loans, refinancing once works reach a certain stage.
Traditional Mortgages (Post-Purchase)
While mortgages rarely fit the auction process directly, they are still essential for long-term refinancing once the property is ready. Many borrowers use auction finance as a stepping stone to securing a mortgage later.
Tips for Buyers Using Auction Finance
Buying at auction is rewarding but risky if you’re unprepared. These tips will help you maximise your chances of success:
1. Arrange Finance Before Bidding:
Do not bid unless you know how you’ll fund the purchase. A Decision in Principle from a bridging lender or broker provides reassurance that funds will be available.
2. Understand the Legal Pack
Every auction property comes with a legal pack. Review it carefully — or have a solicitor do so. Issues like restrictive covenants, lease lengths, or missing planning consents can affect value and financeability.
3. Have a Clear Exit Strategy
Whether you plan to refinance or sell, your lender will want evidence of a realistic exit. Without this, your application may be declined, and you risk defaulting.
4. Budget for All Costs
Auction finance comes with more than just interest. Account for arrangement fees, valuation fees (if required), legal costs, and any refurbishment spending. Build these into your figures before bidding.
5. Stick to Your Limits
It’s easy to get carried away in the auction room. Always set a maximum bid based on your calculations and stick to it. Remember, if you overpay, the lender will only fund up to their valuation — you must cover any shortfall.
Frequently Asked Questions (FAQs)
Can I use auction finance with bad credit?
Yes. Many bridging lenders are less concerned with your credit score and more focused on the property’s value and your exit strategy. Bad credit does not automatically rule you out.
How quickly can I complete with auction finance?
Completion can be as fast as 48–72 hours if the legal pack is clear and the property qualifies for a desktop or AVM valuation. Typical completions are within 5–14 days, well inside the 28-day auction deadline.
What deposit do I need at auction?
Auctions usually require a 10% deposit on the day of the sale. This is non-refundable, so ensure your finance is in place before bidding.
Can I finance commercial or mixed-use properties at auction?
Yes. Many bridging lenders fund commercial and mixed-use properties, as well as land with planning consent. These assets are often unavailable to mortgage lenders but well-suited to auction finance.
What happens if my refinance falls through?
If your long-term mortgage doesn’t materialise, you must find an alternative exit — such as selling the property or refinancing with another bridging lender. Planning a backup exit is always wise.
Are auction bridging loans more expensive than mortgages?
Yes, but they are not designed for long-term use. Bridging rates are higher, but because the loan is short-term, overall costs are manageable — especially when compared to the risks of missing a 28-day completion deadline.
Why Choose Aura Capital for Auction Finance
Navigating property auctions successfully requires not just finance, but the right finance. Aura Capital specialises in fast, flexible auction bridging loans, with access to a broad panel of lenders across the UK.
Speed: We understand the 28-day deadline and work with lenders who can deliver within days.
Flexibility: Whether it’s residential, commercial, or mixed-use, we secure funding even when others can’t.
Expertise: Our team guides you through every step, from reviewing the legal pack to arranging the right exit.
Network: With strong lender relationships, we negotiate competitive rates and terms tailored to your deal.
For investors, landlords, and developers, Aura Capital offers more than funding — we provide the confidence to bid boldly and complete without stress.
Conclusion: The Power of Auction Finance
Auction finance is the engine that powers the UK’s auction property market. It transforms the challenge of a tight 28-day deadline into an opportunity, enabling investors to buy confidently, refurbish strategically, and refinance profitably.
By choosing the right auction bridging loan, you can:
Complete on time.
Unlock opportunities traditional lenders won’t touch.
Leverage your capital for maximum returns.
Build a long-term property portfolio with confidence.
Whether you are a first-time auction buyer or a seasoned investor, auction finance gives you the edge. The key is preparation: know your budget, understand your exit, and work with a broker who understands the auction process inside out.
At Aura Capital, we specialise in arranging fast, flexible auction bridging loans nationwide. Our team ensures your funding is in place, deadlines are met, and opportunities are secured.
Ready to buy at auction? Contact Aura Capital today to discuss your options and secure funding for your next property deal.