Auction Property Finance – What Are Your Options?

Whatever type of property you are bidding on at auction, you should be able to find a lender somewhere who will provide the finance for it.

The three types of auction property you are most likely to be looking for are

1) Residential;
2) Commercial; or
3) Buy-to-let.

When you decide you are interested in a particular property to be sold at a forthcoming auction, your first step should be to approach a mortgage lender or, even better, a broker. They will advise you on which type of auction property finance you should be looking for.

Before you start looking, you need to remember that it’s not true that the only types of property to be sold at auctions are repossessions, or properties that owners can’t shift any other way. There are all types of properties sold at auction, for all sorts of reasons – for instance, the seller just doesn’t want to be stuck in a chain, or wants to avoid the long-drawn-out and uncertain process of “Sold subject to contract”.

However, some properties in quite poor condition probably will be available and you may fancy a bargain. Just make sure you have the finance available to do the property up.

So what are the main types of auction property finance you may require?


• Refurbishment finance. You will need this if the property is not habitable or needs major improvement. You can sometimes also manage with a refurbishment mortgage if you want to change the layout, but it won’t be enough for serious redevelopment.

• Buy-to-let mortgage. You will need this if you want to use the property for letting out as a business venture, or to add it to your portfolio. Some lenders can arrange this within the 28 days, as buy-to-let is one of the most common reasons for buying at auction. However it’s advisable to have a Plan B in case things go awry.

• Property development finance. Property development is another common reason for buying at auction. If you can get the property at a good price, it will increase your chances of making a profit with your project. You will need this type of finance for serious development that is more than doing a property up or refurbishing. Again, many specialist lenders may be able to arrange this for you in time, but don’t leave yourself without an alternative.

• Commercial or investment property finance. It is often possible to get hold of this type of auction property finance, usually from specialist lenders. Ask your broker for advice.

• Bridging finance. This is the most common type of auction property finance and is your “Plan B” for all the other types. You always need to have provisional arrangements for bridging finance in place, even if you have arranged a longer-term loan on your property, in case of unforeseen snags.

When planning to bid on an auction property, never lose sight of the fact that the transaction is legally binding when the hammer falls. You have to come up with the 10 per cent at that point, and the balance within 28 days. So it is essential to decide in advance what type of auction property you require. You also need to make arrangements beforehand, either in principle or by having a survey done. Thinking about it after you have won your bid will almost certainly be too late!

E Berry May 2008

Please note that the FSA do not regulate commercial loans or commercial mortgages

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