Buying at auction without cash: the finance options
Auction contracts complete in 28 days. Almost no mortgage can be arranged that quickly, and the exceptions need to be set up before you bid.
The auction timetable is the obstacle. A deposit is payable on the fall of the hammer, and completion follows in 28 days or less. A standard residential mortgage application, valuation and offer cannot be completed in that window, which is why auction is dominated by cash buyers.
There are routes for a buyer who needs finance, and each requires preparation before the auction rather than after.
The routes
Each of these has a different cost and a different risk profile, and the choice depends on whether the property is mortgageable in its current state.
- Bridging finance: arranged in days, secured on the property, expensive, with a refinance as the exit
- Pre-arranged mortgage with a lender who will work to the auction timetable, which some specialist lenders will
- Buy-to-let or commercial mortgage agreed in principle before the auction, with the valuation instructed immediately
- Refurbishment or bridge-to-term finance, where the lender values the property on its completed basis
- Auction Finance products offered by some auction houses, which are bridging facilities arranged for the specific lot
The exit is the risk
Bridging finance is only viable if there is a credible exit. If the plan is to refinance onto a buy-to-let mortgage after refurbishment, that refinance depends on the property being mortgageable, the valuation supporting the loan and the lender approving the borrower — and any of those can fail.
The discipline is to obtain an agreement in principle for the refinance before drawing down the bridge, and to confirm that the property will meet the lender's criteria once the work is complete. A bridge with no confirmed exit is a bridge that extends at a higher rate or ends in enforcement.
The costs that change the arithmetic
Bridging costs are substantial: typically 0.6% to 1.2% per month, plus an arrangement fee of 1% to 2%, plus legal and valuation costs. On a six-month bridge that is often 7% to 10% of the amount borrowed.
That cost has to be covered by the discount. A lot bought at 10% below market with a 8% bridging cost is not a bargain — it is a property bought at market with additional risk. Work out the total cost of the finance before deciding what the maximum bid is.
Common questions
- Can I buy at auction with a mortgage?
- Sometimes, but it requires preparation. The 28-day completion window is shorter than a standard mortgage application, so you need either a pre-agreed mortgage with a lender willing to work to that timetable, or bridging finance to complete and a refinance afterwards. Arranging finance after the auction is too late.
- What is auction finance?
- A short-term bridging facility, sometimes offered through the auction house, arranged specifically to complete an auction purchase within the contract period. It is priced like other bridging finance — typically 0.6% to 1.2% per month plus fees — and requires a credible exit strategy such as a refinance or a sale.