Spotted what looks like an amazing deal at a property auction?
You’re probably wondering if you can use a mortgage to buy it. While it’s possible to get a mortgage for an auction property, you’ll need to understand how the process works – and it’s quite different from a standard house purchase.
Property auctions are becoming increasingly popular in the UK, especially with rising house prices making buyers look for better value.
But the way auctions work means you’ll need to have your finances worked out before you even think about bidding.
Auction Property Finance
When you buy at auction, the clock starts ticking the moment the hammer falls.
You pay a 10% cash deposit on the day, then you have 28 days to pay the rest of the money and fully complete the purchase – and that’s where standard mortgages become a problem.
Most mortgage applications take a couple of months to be ready, which won’t work with auction deadlines.
Your Options
The good news is you have several ways to finance an auction purchase.
The best option for you will depend on your circumstances, the property condition and your long term plans.
Bridging loans are often the first choice for auction purchases.
They’re designed for exactly this situation – when you need the funds quickly and plan to sell the property or refinance to a regular mortgage later. Yes, they cost more than regular mortgages but can be arranged in days not months.
Here’s how bridging loans work for auction properties:
You arrange the loan before the auction, using the property as security. The lender will want to know two things – what the property’s worth now and how you’ll repay them. That second part is called your ‘exit strategy’ which usually means either selling the property or refinancing over to a mortgage.
The lender does not need the property to be habitable.
Cash is ideal if you can manage it. But ‘cash’ doesn’t always mean having the full amount sitting in your bank account. You might raise it by remortgaging other properties you own, or releasing equity from your current home. Some buyers even use family loans or partnerships to raise the funds.
Pre-arranged mortgages can work but need careful planning. Some specialist lenders understand the auction market and can move quickly – if everything is in place beforehand. You’ll need a full application done, surveys completed and an agreement in principle before auction day.
Even then you should have a backup plan bridging loan.
Get access to expert brokers and specialist bridging lenders
Preparing for the Auction
Success at auction starts well before auction day.
First you need to get hold of the legal pack – that’s the bundle of documents that tells you everything about the property’s legal status. It includes things like title deeds, local searches and any lease details.
Get your solicitor to review this thoroughly – they might spot issues that could affect your finance.
You’ll also want a survey or valuation.
Yes it means spending money before you know if you’ll win the property, but it’s better than buying something with hidden problems. Auction properties are sold ‘as seen’ which means you can’t complain about issues you find later.
On auction day you’ll need to pay a 10% deposit if you win. This is non-negotiable – no deposit, no property. The remaining 90% needs to be paid within the 28 day completion period.
Miss this deadline and you’ll lose your deposit, face potential legal action, and might need to cover the costs of reselling the property.
Don’t forget the auction house fees (2-3% of the purchase price).
Get the right Solicitor
Not all solicitors have the same level of experience. Buying a property at auction, with a bridging loan, needs an experienced specialist.
They not only need to ‘know’ how auctions and bridging works, they need to have the ability to work quickly, to match the auction deadline.
Read more: Do I Need a Solicitor for a Bridging Loan?
Properties That Can Be Mortgaged From Auction
Most properties end up at auction for specific reasons.
Some need major renovation work. Others might have title complications or unusual legal restrictions. Many won’t meet standard mortgage lending criteria in their current state.
A property without a working kitchen or bathroom, for example, won’t interest mortgage lenders – they need properties ready for immediate occupation.
Similarly, structural issues or non-standard construction materials often ring alarm bells with mainstream mortgage providers.
There’s no grace period to add kitchens or bathrooms – they need to be there and working when you get the keys.
What Makes a Property ‘Habitable’?
The property must meet minimum criteria. Must be habitable, readily saleable, structurally sound and be able to have buildings insurance arranged upon it. The mortgage advance may be wholly or partially retained pending completion of works required to bring the property to a suitable condition for lending.
Halifax
For mortgage lenders, habitable means the property must have:
- A working kitchen with proper appliance connections
- A functioning bathroom with toilet, bath/shower and sink
- Sound roof, walls and windows
- Safe, working electrics
- Running water and proper drainage
- Suitable heating system
If any of these are missing, mortgage lenders simply won’t consider lending on the property. It doesn’t matter if you’re planning to install them next week – the facilities need to be there at completion.
Making Properties Mortgageable
Many auction properties need work before a standard mortgage lender will consider them. That’s often the reason that they are sold via auction.
Common issues include:
- Missing kitchens or bathrooms
- Structural problems
- Subsidence
- Outdated electrical systems
- Have serious damp issues
- Non standard construction
For these properties, you’ll need cash or alternative finance, like a short-term bridging loan, to purchase initially. Once you’ve done the necessary work to make the property habitable, you can then refinance to a standard mortgage.
Take one of our recent clients as an example.
They bought a property at auction that had been empty for five years. The kitchen was missing, the electrics needed completely redoing and the bathroom was, well, let’s just say it had seen better days. Understandably, no standard mortgage lender would touch it.
They used a bridging loan to buy the property, spent 8 weeks doing the works, then remortgaged on to a much better rate. The whole process took about 3 months and they ended up with a mortgageable property worth much more than they paid for it.
Get advice from mortgage brokers before the auction – they can tell you whether lenders would consider the property in its current state. This helps you avoid nasty surprises and choose the right type of financing strategy from the start.
The Six Month Rule
Ask your broker to explain the ‘six month mortgage’ rule. In brief it means your mortgage choices are limited if you need to remortgage within 6 months of purchasing the property.
Read more: What is the 6 month mortgage rule?
Common Problems
We’ve found that most auction property problems come down to rushing or lack of preparation. Let me share some real examples to help you avoid the same.
Take Mark.
He found what looked like a bargain flat at auction. After winning the bid he discovered the lease had only 40 years left – impossible to mortgage.
A more thorough legal check beforehand would have flagged this up.
Another client almost got caught out with their bridging loan. They had an agreement in principle but hadn’t sorted out all the paperwork. When they won their auction lot the lender needed extra documentation they hadn’t prepared.
They just made it in time.
Buy-to-Let Considerations
Buying an auction property as a buy-to-let investment brings additional considerations.
Mortgage lenders will want to know the potential rental income and will have strict requirements on the property’s condition.
They, also, need the property to be fully habitable upon completion.
You still have to contend with the 28 day auction period. Your BTL mortgage needs to have been approved, including the valuation, before auction day. Otherwise you risk running out of time.
Professional Support
When buying at auction the right professionals can make all the difference between success and a very expensive mistake.
A specialist broker who knows the auction market can be worth their weight in gold.
They’ll know which lenders work with auction properties and how to present your application in the best way. More importantly they’ll know the backup options if your first choice falls through.
Your solicitor needs auction experience too.
Standard conveyancing solicitors can struggle with auction timescales – you need someone who knows exactly which checks to prioritise and how to work to tight deadlines.
Making Your Move
If you’re thinking of buying at auction start your preparations early. Get your finances in place, find your professional team and know what you’re getting in to.
The most successful auction buyers:
- Research before auction day
- Have their funding fully arranged
- Know their maximum bid and stick to it
- Know all the costs
- Have backup plans ready
Ready to get started with your auction property finance?
We work with specialist brokers who know auction purchases inside out. They’ll explain all your options and help you prepare.
Just call us or complete our contact form and we’ll put you in touch with a broker who will guide you through the whole process from planning to completion.
No obligation and tailored to your situation.
Buying at auction can be a great way to find property deals – but only if you do it right. Get it right and you’ll be winning your dream property at auction soon.
Frequently Asked Questions
While technically possible, standard mortgages rarely work for auction properties because they take too long to arrange. You’ll need to complete within 28 days after winning a bid.
And while a lender may promise to process your application quickly, there’s always a possibility that this is still not quick enough…
You’ll need 10% of the purchase price immediately when you win the bid.
For the total purchase, expect to need at least 20-25% deposit for a bridging loan.
Read more: Do you need a deposit for a bridging loan?
Bridging loans are usually the fastest option, often arranged within 5-10 working days. You’ll need proof of how you’ll repay the loan, either through sale or refinancing to a standard mortgage.
You don’t ‘need’ a survey but it’s highly recommended. While it means spending money before you know if you’ll win, a survey or valuation helps you understand the property’s condition and potential repair costs. It’s also needed for finance arrangements.
You’ll lose your 10% deposit and could face legal action from the seller. That’s why it’s essential to have finance arranged before bidding.
Yes, many lenders offer finance for limited companies and SPVs buying at auction. You will need to provide personal guarantees, and rates may differ from personal borrowing.
The legal pack contains essential documents about the property, including title deeds, searches, and lease information. Your solicitor must fully review this before bidding to spot potential problems that could affect finance.
Many auction properties need work. Bridging finance can cover purchase and renovation costs, then you can refinance to a standard mortgage once improvements are complete.
Yes, you need a solicitor to review the legal pack before bidding. Choose one with auction experience who can work to tight deadlines.
Yes, specialist commercial bridging loans and mortgages are available. Terms depend on property type and intended use.
Read more: Business Bridging Loans Explained
