Auction finance: Compare bridging loan rates

Getting a mortgage to buy at auction isn’t always possible. We explain how short-term auction finance works to help you secure the property you want.

Whether you’re buying a property to live in or as an investment, buying at auction can be a great way to find a bargain and buy quickly with no risk of being gazumped.

The short timeframes involved with traditional auctions mean it can be tricky to get a mortgage approved in time if you don’t have the cash.

If your bid is successful you’re legally bound to buy the property as soon as the auctioneer’s hammer goes down and you have to exchange contracts and pay a 10% deposit there and then. After that you have 28 days to complete the purchase.

Online, or “conditional”, auctions give you more time – there’s usually a 30-day period during which you can submit your bid and then you have 28 days to exchange contracts and a further 28 to complete – 56 days in total.

Many properties sold at auction are also “unmortgageable”, as they’re not immediately habitable because they’re dilapidated or don’t have a working kitchen or bathroom, or they’re unusually constructed, for example.

Compare bridging loan rates

Table: sorted by monthly interest rate
Name Product Maximum LTV Loan term Loan amount Monthly interest rate
United Trust Bridging Loan
United Trust Bridging Loan
70%
1 month to 36 months
£75,000 to £25,000,000
0.48% to 1.1%
Hope Capital Bridging Loan
Hope Capital Bridging Loan
75%
3 months to 24 months
£50,000 to £500,000
0.54% to 1.05%
Octane Bridging Loan
Octane Bridging Loan
65%
1 month to 24 months
£150,000 to £25,000,000
0.55% to 1%
Lend Invest Bridging Loan
Lend Invest Bridging Loan
75%
3 months to 24 months
£75,000 to £25,000,000
0.55% to 0.94%
MFS Bridging Loan
MFS Bridging Loan
75%
3 months to 18 months
£100,000 to £0
0.65% to 1.25%
Octopus Bridging Loan
Octopus Bridging Loan
60%
1 month to 24 months
£50,000 to £25,000,000
0.7% to 0.9%
loading

Compare up to 4 providers

Overall representative example for regulated bridging loans
If you borrowed £273,000 over a 1-year term at 8.15% p.a. (fixed), you would make 12 monthly payments of £1,896.88 and pay £302,057.56 overall, which includes interest of £22,762.56, a broker fee of £995 and a lender fee of £5,300. The overall cost for comparison is 11.1% APRC representative.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

How to get a loan to buy at auction

If you can’t get a mortgage your best option is auction finance, which is effectively a bridging loan. This is short-term finance you take out for 12-18 months, although it could be for as little as one month or as much as two years, and then pay it off by either selling the property or refinancing it with a mortgage.

It can be arranged quickly. In as little as 7-10 days or less is possible but definitely within the timeframe needed for an auction purchase.

It’s best to speak to a specialist auction finance broker who will look at all the loans available to find the best one for you. They can also get you a decision in principle before the auction, which means you’ll know beforehand that you’re likely to be approved for a loan and it can be arranged more quickly if your bid is successful.

You can usually borrow up to 75% of the property’s value or purchase price. However, the set-up fees and interest may be charged at the outset, which means you would end up with around 70% to buy the property. Alternatively, you may be able to make interest payments each month or pay it all off at the end.

It may also be possible to borrow up to 100% if you have other assets to use as security. Loan amounts generally start at £25,000.

Things to consider when taking out auction finance

Your personal finances are less important with auction finance than they are with a mortgage, although the lender will still want to do credit and identification checks. The main focus will be on the property you want to buy, which the loan will usually be secured on, although it could be secured on property or other assets you already own.

You’ll need to show a clear exit strategy (how you intend to pay off the loan) to be approved.

You may be planning to renovate the property and then sell it to pay it off using some of the profits. Or you may be planning to rent out the property once it’s in a habitable state, so intend to take out a buy-to-let mortgage to repay it. If you plan to live in the property yourself after refurbishing it you should be able to get a residential mortgage, although bear in mind that you’ll need a regulated bridging loan to buy it.

Whatever your strategy, the lender will want to be sure that it’s viable for the property you’re buying. You may need to get a decision in principle for a mortgage when you apply for the auction finance if this is your plan.

There may be an arrangement fee for the loan, an exit fee if you pay it off early, a redemption fee for closing your account when you repay the loan and legal fees but you often won’t have to pay all of these.

It’s a good idea to get a valuation and survey done of the property you’re interested in and ask your solicitor or licensed conveyancer to check the legal pack supplied by the auction house before the auction so you can be sure of what you’re buying. You would lose the money you paid for these if you weren’t successful at the auction though.

You should also get advice from professionals about the cost of any renovations.

Pros and cons of auction finance

The main benefits of auction finance are that it can be taken out on properties that are not mortgageable and can be arranged quickly.

You can use it to buy properties that need extensive renovations, so it allows you to buy and refurbish a property or convert it, into flats or from a commercial to a residential property for example, to sell for a profit or to let.

It can be used to buy all types of residential properties, including houses in multiple occupation (HMOs), which have multiple tenants, land and commercial properties.

And as your credit history and income are less important than the property itself, it may be easier to get auction finance than a mortgage if you have had credit problems in the past or have a relatively low income or are self-employed.

You don’t have to make any payments during the term of the loan, which frees up your money for any renovation work.

The downsides of auction finance are that it is relatively expensive so should only be used as a short-term solution, and you could face substantial penalties if your exit strategy fails and you can’t pay off the loan at the end of the term.

Bottom line

Auction finance can be a good option for funding an auction purchase if you can’t get a mortgage, as long as you have a viable exit strategy for paying off the loan at the end of the term.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you.

More guides on Finder

  • What is Compound Finance?

    We explore how to use Compound Finance for lending and borrowing.

  • Agricultural mortgage

    What you need to know about getting a mortgage if you’re buying or refinancing a farm or farmland, including the factors lenders consider when you apply for one.

  • Mortgage for a pub

    Everything you need to know about taking out a mortgage to buy or refinance a pub. Find out where to get one, how to get the best deal and the factors lenders consider.

  • Mortgage for a hotel

    In-depth guide to taking out a commercial mortgage to buy or refinance a hotel. Find out how to get the best rates, factors lenders consider and what you need to apply.

  • Bridging loan vs commercial mortgage

    Find out if a bridging loan or commercial mortgage would suit you if you’re buying or refinancing commercial property and when a bridging loan can be a better option.

  • How much deposit do I need for a commercial mortgage?

    Find out how much deposit you need if you’re taking out a commercial mortgage, including the factors lenders take into account, and how to get the best deal for you.

  • What is Yearn Finance?

    Learn how to use DeFi aggregator Yearn Finance to earn interest on your cryptocurrency.

  • Chain break finance

    Learn everything you need to know about chain break finance – a type of bridging loan that stops you losing your dream home if the sale of your existing one falls through.

  • Fix and flip

    Read our in-depth guide to fix and flip and how this type of property investment works, including the factors you need to consider, the risks to be aware of and how to finance it.

  • Commercial bridging loan

    Everything you need to know about commercial bridging loans. We look at when they’re useful, how they work and what to be aware of before taking one out.

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked
Finder.com provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and Terms of Use.

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site