property auction finance2019-12-04T10:54:23+00:00


Check Loan Rates & Eligibility

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What is Auction finance

Put simply auction finance is a short term loan provided by a lender ignorer to secure a property at auction. Naturally given the circumstance that an applicant will require the funding solution for they will require the loan at speed. Given that typically once a property has been purchased at auction the new owner will have a maximum of 28 days to complete its easy to understand why speed is extremely more important than on a conventional bridge as the new owner will be subject to charges from the auction house if the purchase can not complete within these time frames.

How is a property auction loan structured

Once the gavel comes down and the new owner of the property has been approved by the auction house they will first need to pay a 10% deposit on the day. The new owner will also need to sign a legally binding contract that they will complete the full transaction within 28 days. It is at this point where the property auction loan will either be utilised as it has been put in place prior to the auction, or the new owner will now seek funding from a lender to meet the remaining balance.

Funding from the new owner’s perspective can take a number of forms due to their intention for the property. They can look to acquire the finance to simply fill the funding gap prior to re-mortgaging the property should they be looking to live in the property. They can look for a purchase and development loan should they be a developer (essentially they will be taking on two loans within the facility) and be looking to undertake renovation on the property over a period of time for which they either intend to sell as an exit strategy or to then live in (dependent on the end goal in this scenario will determine if the loan is regulated or unregulated).

Whatever the end goal is the new owner can secure auction finance from numerous lenders from across the market which can be used to complete on land, residential properties, buy to lets, commercial and semi-commercial buildings.

How is the interest calculated on property auction finance?

One of the most common ways to structure a property auction loan is to apply the interest monthly, however, this is not the only way that a lender could structure the facility. A brief overview of each repayment method is listed below:

  • Montly: as is common practice you will make interest payments across the full loan term every month based on the rate from the lender and you will repay the full loan amount at the end of the agreement.
  • Retained: With this loan structuring the lender will calculate the interest for the full term by adding all of the monthly payments together, you are effectively lending the interest for a set period of time.
  • Rolled up: All interest are accumulated and added to the loan at the end of the agreement, at the end of the loan the complete loan amount and rolled up monthly repayments will be repaid.

What are the advantages of auction finance

– The provide a great opportunity to secure residential and commercial property at below market prices

– You can use auction finance to secure an auction property both pre and post auction

– You will be able to drawdown funds to complete the purchase in days not weeks (dependent on lending provider)

– You will only have to put up between 10% – 25% to fully purchase a property with the aid of auction finance

– Generally properties from auction represent a greater ability of capital uplift

– Underwriting process can be one of the quickest

What are the disadvantage of auction finance

– Your 10% deposit is none refundable

– You must secure finance within 28 days of securing the property

– You have no legal rights to the property if you fail to complete in 28 days

– If your finance falls through you still have to secure another funder before the 28 days expires

What are the alternatives to auction finance

The reality is that auction finance can also be classified as a property bridging loan due to the nature of what the loan is being required to facilitate. You can opt for a purchase and development loan but due to the underwriting that can be involved in a development loan speed to draw-down can be an issue for securing an auction property via this type of funding. In circumstances like this where a developer looks to acquire a loan for the purchase and development of an auction property what can often happen is the lender may include two facilities under the one loan. There would be a loan delivered at speed to secure the property and then the development loan which would include a lengthier drawdown process which would include the obligatory valuations hence lead to a longer time to drawdown.

Example Auction Loan Interest Rates

The below example is based on a £100,000 property auction loan

Interest RateMonthly Interest
0.45%£450
0.6%£600
0.8%£800
1%£1000
1.2%£1200
1.4%£1400
1.6%£1600
1.8%£1800

What do I need to know about auction finance

– You are able to apply for an auction loan both pre and post-auction. Having a loan in place prior to the auction is known as having an agreement in principle. Once the property has been secured you would then progress the loan.

– Auction finance can be quicker to secure as the lender can secure funding based on fewer initial checks, for instance, the lender may not require income history, also business plans may not need to be submitted dependent on the exit strategy. Based on the security the lender is putting into the loan i.e. are they putting more in than the initial 10% deposit etc they could benefit from additional incentives.

– Alternative specialist enders i.e. not from the high street will be far more likely to provide auction finance for properties in a state of disrepair and or are an unconventional property type.

– Auction finance can be available on average from 6 – 18 months.

– Alternative lenders will also consider properties which require heavy refurbishment and even land which has planning for ground-up development.

– Typically lender will look for between anywhere from 50% – 75% of the loan to value of the property, naturally this leaves a shortfall for securing the property so the lender will be expected to fulfill this shortfall.

What do I need to know before bidding at a property auction

– Actually be clear that you are eligible to receive auction finance from a lender

– Be sure that you have done your due-diligence on the property you intend to purchase

– Comprehensively review the auction house document relating to your intended property

– If possible speak to the vendor or auction house to see if you can visit the property with an architect or builder to assess it’s condition

– Review the full legal pack from the auction house and also have your own solicitors review it

– Ensure you have a solicitor review all of the legal searches and legal covenants

While it’s true that experienced developers/auction buyers may choose to overlook certain elements from the above checklist the more that you can undertake prior to the auction provides the greater degree of investment security.

The importance of planning & research

Given the level of investments involved with purchasing property undertaking significant research of not just the property but also the area is key to not just your maximum offer but also your exit strategy. Should you be looking to buy to let then does your predictions regarding monthly yields stack up. Also, do the sums add up regarding the purchase and then the future development for your project when you come to sell and receive the level of capital appreciation that you require. While the temptation can be always to look at high growth areas and yield predictions one of the best pieces of advice is always to keep in mind areas that you know and to consider the ramifications of running a build project further afield from your location.

What is provisional acceptance

This can be vitally important to the purchasing process as entering an auction house with an auction loan in principle agreed prior to the property going under the hammer can alleviate the stress of looking to secure finance once the property has been won. Attaining a provisional agreement can be reasonably straightforward compared to securing a development loan for instance, while having certain criteria such as your experience level and a proposal for funding which isn’t too ambitious can mean a provisional agreement can be reached in a very short period of time. This isn’t to say that first-time auction purchasers of ambitious developers will be refused it just means that the underwriting process to attain the loan in principle may take slightly longer.

Why is auction finance important for developers

Speed, this is the overriding message that you will see throughout this piece and when you consider a 10% non-refundable deposit is paid on all auctions won the costly repercussions of a failed completion don’t worth contemplating for any winning bidder irrespective of experience or wealth. The ability to also secure funds without the more in-depth underwriting process that can be applied from a development loan is also a significant plus, it is for such reach why a property will be purchased for speed and then re-financed a short period of time later.

What type of properties can auction finance purchase

Residential:

The most common is residential property, the end purpose for the purchase can have different outcomes for both the terms and lender offers you will receive. One of the big factors here will be is the purchasers looking to live in the property or not. Naturally, the general level of condition, location and current state of disrepair will be required, the lender may also request the auction houses sales documents. If they are looking to live in the property then they will be looking for a regulated loan, but if not then they will require an un-regulated loan. Other long-term objectives for a property that can affect the loan rate and offerings could be has planning been agreed on any required development work, the level of planning which has been agreed, if looking to refinance following purchase how quickly is this intended and is there a policy provider already in place.

Commercial property

A lender will require more information regarding this type of property purchase compared to a standard residential purchase, having said this though the type of property which lenders will help the purchaser secure can include offices,  warehouses, restaurants, retail shops, pubs, industrial facilities with funding available from Mint Bridging for all of these type of auction finance requirements, however as we specialise in unregulated loans.

Mixed-Use

This concerns semi-commercial properties which comprise of a mix of commercial and residential i.e. high street retail unit or restaurant which then contains residential property above. As Mint Bridging specialises in unregulated loans we will not provide funding for lenders planning to live in any affixed residential properties attributed to the commercial property.

Can I get an auction loan for a property deemed uninhabitable?

The short answer is yes, once of the strengths of working with an alternative lender as opposed to high street lenders is their flexibility. You may have to be prepared to go through a more stringent underwriting process and prove that you either have the funds in place to undertake the works needed to bring it back to a livable/marketable state. Should you be looking to take out a development loan in conjunction with the auction loan then you will again need to outline the plans for the development and provide accurate information and proof relating to the security being used to fund the development. Naturally, your experience level within the property development sector will strengthen the case of taking on such a project. Taking that into account it’s also worth knowing that Mint Bridging is flexible when it comes to the experience level we treat all cases individually, so should you be a first-time developer taking on such a project then we would evaluate the project, the borrower and the security accordingly.

Is auction finance right for me?

This can come down to a number of questions that you will need to ask yourself prior to bidding on a property under the hammer, most importantly do you have the initial 10% to put down as a deposit and the resulting shortfall available to you to fill the void left by your secured auction finance. This obviously is the immediate concern but following this, there are other questions you need to ask yourself such as are you comfortable with securing finance with a deadline in place? If not then securing an agreement in principle is always recommended. Also, should you be an inexperienced developer would you feel comfortable with having to pay higher rates, unfortunately, this can be one of the downsides of auction finance for new users of this funding line. However, the difference isn’t too substantial but you should be prepared to pay slightly more for your first few auction purchases. On the plus side, all lenders of auction finance do have the potential to purchase property below market value without the need to contribute the full asking price.

Do you need a property auction loan?

Contact Mint Bridging today to discuss your auction finance needs on 0161 710 2006 we have underwriters on standby to discuss your case. We can review your needs to explain all your available options from our property auction offerings to discover personalised loans tailored to your needs. We provide some of the most flexible terms and competitive rates on the UK market regardless of experience, project size and required drawdown time frames. Our funding solutions come directly from Mint Bridging we are the lender meaning we can save you more on fees.

What are the costs of setting up an auction loan2019-12-04T09:58:38+00:00

We personally do not ask for any application costs but should you be accepted then dependent on the deal in principle offered you could pay from 1% – 4% arrangement fee dependent on how the loan is to be structured. This is however only payable once you have accepted the development loan and funds have been deposited.

There can be additional costs attributed to valuations of properties at various stages of the development. Mint Bridging also include portfolio managers within the facility to assist in the loan delivery and customer care management throughout the lifetime of the loan.

We may also include a contingency loan within the facility this is additional finance that can be called upon should certain circumstances arise that cause the loan completion date to be exceeded. No additional charges are added for this and also lenders are not forced to use this funding it is added as a safeguard for our lenders.

What happens if I require more funding2019-12-03T17:09:26+00:00

If a lender senses they are going to exceed their completion date then they will need to either apply for an extension as not to go into default or to refinance with another lender. Now it is up to the lender whether they grant additional funding within the extension and if they also actually grant the extension. This can come down to the amount of equity that has built up within the property being developed and also if you are open to adding more security to the loan.

Are there early repayment fees applied to auction finance2019-12-04T09:58:23+00:00

The vast majority of our property auction loans do not have early exit fees applied to them as this is one of the key benefits of taking out such a loan with Mint Bridging. However, if this is applied it will be explained clearly at the outset of the agreement in principle.

What happens if I go over my redemption period2019-12-04T10:11:59+00:00

Given the amount of due-diligence done the lender and also possibly the broker if one was involved the most important aspect which will have been covered of first is how do you expect to repay the loan and within what time frame. Failure to meet clear guidelines set by the lender on this will mean the development finance would fail.

If the sale of a property is the expected method of exit then it is very common that after the statement of works the lender and borrower would leave a small amount to fo time which they agree on within the loan 1-3 months whatever the case may be in order to have ample time for the property to be sold.

If they list refinance then numerous due-diligence checks will be done by the lender to ensure the client will be able to retain a good credit rating in order for this to be secured at the end of the agreement.

At Mint Bridging we stay in regular contact with our borrowers so that if an exit is looking unlikely 1,2,3 months prior to the end of the agreement then we can begin to put safety measures and put recommendations in place to ensure either the loan is complete or an extension can be granted (but this will be based on numerous factors being met).

This is where getting your time scales correctly is vital to the profitability of your project; by working with Mint Bridging we can assist borrowers at every stage of the funding and development process to ensure their projects goals have an increased degree of success compared to our competitors.

What happens if I go over my redemption period2019-12-04T10:15:39+00:00

Given the amount of due-diligence done nay the lender and also possibly the broker if one was involved the most important aspect which will have been covered of first is how do you expect to repay the loan and within what time frame. Failure to meet clear guidelines set by the lender on this will mean the bridging finance would fail.

If the sale of a property is the expected method of exit then it is very common that after the statement of works the lender and borrower would leave a small amount to fo time which they agree on within the loan 1-3 months whatever the case maybe in order to have ample time for the property to be sold.

If they list refinance then numerous due-diligence checks will be done by the lender to ensure the client will be able to retain a good credit rating in order for this to be secured at the end of the agreement.

At Mint Bridging we stay in regular contact with our borrowers so that if an exit is looking unlikely 1,2,3 months prior to the end of the agreement then we can begin to put safety measures and put recommendations in place to ensure either the loan is complete or an extension can be granted (but this will be based on numerous factors being met).

This is where getting your time scales correctly is vital to the profitability of your project; by working with Mint Bridging we can assist borrowers at every stage of the funding and development process to ensure their projects goals have an increased degree of success compared to our competitors.

What can an auction loan be secured against2019-12-03T16:58:12+00:00

They can be secured against a residential property, commercial property as well as land and building plots. What can also be advantageous is that if the lender contribution with the applied second charge does not meet the lender’s requirement, lenders may look to combine multiple assets together within the second charge in order to meet the minimum requirement of the development facility.

How quickly can I get my decision2019-12-03T17:15:30+00:00

Typically applications can be processed with an outcome within 1-3 hours with a decision in principle outlining the structure of the bridge loan within 48 hours.

What are my auction loan application options2019-12-04T09:32:21+00:00

You can contact Mint bridging direct over the phone, via email or by completing an online eligibility check, then once we have your auction loan requirements we can begin the application process.

What is Mezzanine funding2019-12-04T10:10:59+00:00

This is a method of finance for development projects which are generally used for projects which are being built from the ground up. The majority of the finance for the development will be from a primary lender with the remaining funds being made up vis the developer and the mezzanine lender who will take a second charge for security.

I have bad credit can I apply for auction finance2019-12-04T09:57:32+00:00

The short answer is yes as at the forefront of most lender’s decision is the security being put up for the auction finance being requested. However, more ethical lenders like Mint Bridging may ask a few additional questions at the application stage just to ensure that the lender can securely meet their security needs and timescales obligations.

My auction finance was agreed in principal, now what?2019-12-04T09:56:44+00:00

Once you have had an agreement in principle if this has been secured pre-auction then providing you secure the property you sought the funding for then once we have been informed we can push your case to be completed by underwriters and legals ready for drawdown. Naturally, as you have undertaken the groundwork prior to auction completions will be quicker. Should you have sought auction finance post-auction then the process while quick can take a number of days longer while we underwrite the loan and the securities before passing the case across to legals prior to drawdown.

Can I secure auction finance if I have a CCJ, am in arrears or have previously defaulted on a loan – copy2019-12-04T09:57:06+00:00

While this is not an initial refusal for a property auction loan there are many solutions available if the lender has had financial constraints, gone into default or previously been declared bankrupt. The lender will naturally need to be able to supply evidence of their security and also be prepared to be asked additional questions if required around previous defaults.

How long will it take before my finance is deposited2019-12-04T10:14:19+00:00

Once the application process has been verified by both sets of legals then borrowers can have their funds deposited into their accounts. This can occur as fast as 5 working days depending on all key areas have been satisfied by both parties.

CORPORATE APPLICATION (PDF)

INDIVIDUAL APPLICATION (PDF)