Understanding Auction Finance

Auction finance is a type of short-term finance used to purchase properties at auctions. It enables buyers to quickly secure funding for a property purchase, without having to wait for traditional financing methods to come through.

The auction finance process typically involves the following steps:

  1. Pre-approval – Before attending the auction, the borrower will need to obtain pre-approval for auction finance from a lender. This will involve providing details of the property being purchased, as well as information about the borrower’s income, credit history, and other financial information.
  • Auction day – On the day of the auction, the borrower will bid on the property they wish to purchase. If successful, they will need to pay a deposit (usually 10% of the purchase price) immediately.
  • Completion – Once the deposit has been paid, the borrower will have a short period of time (usually 28 days) to complete the purchase. During this time, they will need to arrange for the remaining funds to be transferred to the seller.

Benefits of Auction Finance

Auction finance can offer a range of benefits to property investors or developers who need quick access to funds to secure a property at auction.

Some of the key benefits include:

  1. Quick access to funds – Auction finance can be processed quickly, with funds often available within a matter of days or weeks. This can be useful for borrowers who need to move quickly to secure a property at auction.
  • Flexibility – Auction finance can be used for a range of purposes, such as purchasing a property at auction, refurbishing a property, or financing a property development project. They can also be used by homeowners who need to move quickly, such as those who are relocating for work or separating from a partner.
  • No credit check – Some auction finance lenders may be willing to lend to borrowers with a poor credit history, as the loan is secured against the property being purchased.
  • No upfront fees – Some auction finance lenders do not charge upfront fees, allowing borrowers to access funds without incurring additional costs.
  • No early repayment charges – Some lenders do not charge early repayment fees, allowing borrowers to repay their loan early without incurring additional costs.
  • Flexible repayment terms – Auction finance typically has flexible repayment terms, with some lenders allowing borrowers to make early repayments without incurring penalties. This can be useful for borrowers who are able to repay the loan sooner than expected, as it can help to reduce the overall cost of the loan.

Types of Auction Finance

There are two main types of auction finance: bridging loans and specialist auction finance.

Bridging Loans

Bridging loans are a popular option for auction finance. They are short-term loans that can be used to purchase a property and are secured against the property being purchased. Bridging loans typically have high-interest rates and short repayment terms, often ranging from six to twelve months.

Specialist Auction Finance

Specialist auction finance is a type of financing designed specifically for auction purchases. Unlike bridging loans, specialist auction finance is not secured against the property being purchased. Instead, it is based on the potential value of the property and the buyer’s financial standing. Specialist auction finance typically has lower interest rates than bridging loans but requires a good credit score and financial background.

The Types of Properties or Assets That Auction Finance Can be Used for?

Auction finance can typically be used to purchase a range of properties or assets that are being sold at auction. Some of the most common types of properties or assets that can be financed using auction finance include:

  • Residential properties – including houses, apartments, and flats.
  • Commercial properties – including offices, shops, and industrial units.
  • Development sites – including land or properties that have the potential for development.
  • Investment properties – including buy-to-let properties or those with the potential for rental income.
  • Property portfolios – including a portfolio of residential or commercial properties.
  • High-value assets – including art, antiques, and classic cars.

It’s important to note that the availability of auction finance may vary depending on the lender, and some lenders may have restrictions on the types of properties or assets that can be financed. It’s always advisable to check with the lender before applying for auction finance to ensure that the property or asset is eligible for financing.

Auction finance can be an attractive option for property investors or developers, as it allows them to access quick funds to secure a property at auction. However, it’s important to remember that auction finance is typically more expensive than traditional loans, due to the increased risk to the lender. As such, it’s important to carefully consider the costs and risks associated with the loan before taking one out, and to ensure that the loan can be repaid in full within the agreed term.