Buying a property at auction is fast-paced, potentially lucrative, and increasingly popular across the UK. However, it also demands a different approach to finance—one that can match the speed and certainty required to secure your bid. Navigating auction finance calls for specialist advice and access to niche lenders, which is precisely where Friends Capital’s expertise gives you a tangible advantage.
In this comprehensive guide, we will demystify what auction finance is, why it is necessary, how it works, and how Friends Capital’s established relationships with leading auction finance lenders can give you an edge—whether you’re a seasoned investor or first-time auction buyer.
What is Auction Finance?
Auction finance is a type of short-term lending, typically referred to as a bridging loan, designed for buyers who are purchasing property at auction. The central appeal is speed: you can draw funds far quicker—often within a matter of days—than through standard mortgage channels. This ensures you can complete your purchase within the auction house’s strict deadlines.
Key Features
Short-term solution: Usually, bridging loans for auctions run from 1–24 months.
Interest-only payments: In most cases, the loan is interest-only for its duration.
Flexible security: Can be secured against the auction property or other assets.
Fast turnaround: Some lenders can advance funds within 7–10 days—or as fast as 24 hours in select cases
Typical Structure
Deposit on auction day: You’ll need to pay typically 10% of the hammer price straight away.
Completion: The balance is required within 14–28 days, sometimes up to 56 days with online auctions
Bridging loan: Auction finance covers the gap between your deposit and the full price, giving you time to arrange a long-term mortgage or sell the property.
Why Do Auction Purchases Need Special Finance?
Short Deadlines
Unlike a standard property purchase, where completion can take several months, auction houses require the sale to close rapidly, sometimes within just 14 days. Most traditional lenders cannot process mortgage applications at this speed, especially for properties that require significant refurbishment or have non-standard construction issues
Mortgage Limitations
Not every property at auction is mortgageable on day one. For instance, buildings without a functioning kitchen or bathroom, or those in significant disrepair, are rarely accepted by high street lenders. A bridging loan allows buyers to complete the purchase, renovate, and then refinance onto a traditional mortgage.
How Does Auction Finance Work in Practice?
Prepare Before the Auction
Get a ‘decision in principle’ for auction finance—know precisely how much you can borrow before bidding.
Review auction legal packs and brochures; set your budget with your finance in mind.
Bid with Confidence
With a finance agreement in hand, you can bid knowing your funding will be available within the completion window.
Pay Deposit and Secure Finance
Upon a successful bid, pay the deposit (usually 10%).
Your bridging lender completes due diligence and advances the remaining funds within the set timeframe.
Define an Exit Strategy
You’ll need a clear plan for repaying the auction finance—commonly by selling the property or refinancing to a longer-term mortgage
Who Uses Auction Finance?
Property investors seeking opportunities in residential, commercial, mixed-use, or development properties.
Landlords expanding their portfolio.
First-time buyers or home movers looking to secure a property requiring renovation.
Developers and traders needing quick access to opportunities that may not fit standard lending criteria.
Types of Properties Suited to Auction Finance
Residential homes
Houses in Multiple Occupation (HMOs)
Mixed-use and commercial buildings
Land (with or without planning)
Unmortgageable or derelict properties
Costs and Considerations
Interest rates: Tend to be higher than traditional mortgages, reflecting the speed and flexibility—rates from 0.79% per month are common.
Arrangement fees: Usually 1–2% of the loan amount.
Valuation and legal costs: Can sometimes be streamlined or even conducted via desktop valuations.
Exit fees: Often not charged, but read the small print.
Remember that auction finance is a short-term product, so transitioning as soon as feasible to a lower-cost, longer-term mortgage is important for minimising your total loan costs.
The Process: Step-by-Step
Challenges in Auction Financing
Tight timescales: Lenders and solicitors must act quickly; experienced teams are a must.
Specialist property types: Ex-council, high-rise, or ‘unmortgageable’ properties need niche lenders.
Credit issues: Some lenders are more flexible about adverse credit histories.
Exit clarity: Lenders want confidence that you can repay on time—plan your exit before bidding.
How Friends Capital Makes a Difference
Whole-of-Market Access
Friends Capital are expert mortgage advisers operating throughout the UK, with a keen understanding of auction finance and a ‘whole-of-market’ approach. This means they are not tied to any single lender and can seek out the best deals from across the spectrum of auction finance providers
Pre-Existing Relationships With Auction Finance Lenders
What sets Friends Capital apart is their already established relationships with specialist auction finance lenders. This brings considerable advantages to you as a buyer:
Priority application processing: Fast-tracked decisions and access to exclusive auction finance products.
Exclusive rates and terms: Potential for lower rates or more flexible criteria not widely available to individual buyers or even many brokers.
Expert guidance: Knowledge of each lender’s particular appetite for property types, loan-to-value limits, and documentation requirements.
Efficient paperwork: Friends Capital can swiftly submit and manage all necessary documentation, ensuring your application moves seamlessly through assessment, valuation, and funding stages.
Support at every stage: From arranging finance before the auction to liaising with solicitors and handling last-minute issues, their expertise covers every angle
Personalised, End-to-End Support
Friends Capital will analyse your personal circumstances, search the entire market, and guide you to the most suitable financing solution for your individual needs and objectives. Whether you’re pursuing a buy-to-let, a commercial conversion, or snapping up a fixer-upper, they orchestrate the arrangements so you can focus on the bid
They handle:
Initial feasibility and pre-approval
Paperwork and compliance
Liaison with the lender and solicitor
Coordination with the auction house
Guidance on exit strategies and post-completion refinancing
Auction finance unlocks exciting opportunities in the dynamic UK property market, but its complexities and deadlines require specialist handling. Friends Capital are ideally placed to guide you through every step, with direct access to niche auction finance lenders and deep industry expertise to ensure your auction ambitions are a success.
If you are considering a property purchase at auction—or simply want to explore your options—contact Friends Capital to tap into tailored guidance, market-leading rates, and a smooth buying experience from start to finish.
Interested in learning more about how Friends Capital can help with your auction finance needs? Contact Us Today!
