Auction Property Finance, Also Known as Bridging Finance: How It Works
Hammer Ready Guides · 6 min read
You have found the pub, shop, unit or care home your business should own, and it's going under the hammer. The question is how to pay for it before the auction's deadline.
The answer is Auction Property Finance. In the finance world it is often called bridging finance or a bridging loan. Whatever the name, it is short-term property finance built to complete within auction timescales. This guide explains how it works, what it costs and how to get ready.
Start with the deadline
The type of auction decides how much time you have.
Traditional (unconditional) auction. Contracts exchange when the hammer falls. You pay a deposit, usually 10%, on the day, and usually have around 28 days to complete.
Modern method (conditional) auction. You pay a non-refundable reservation fee, then typically have 28 days to exchange and a further 28 days to complete.
Always check the special conditions in the legal pack for the actual dates. If you miss completion at a traditional auction, you can lose your deposit.
What is Auction Property Finance?
Auction Property Finance is a short-term loan secured on the property you are buying. It is designed for speed: specialist lenders focus on the property, the legal pack and how you will repay, so they can move within an auction's deadline.
It is called bridging finance because it bridges the gap between buying the property now and repaying the loan later.
At a glance
| Feature | Auction Property Finance (bridging finance) |
|---|---|
| Purpose | Completing a property purchase within the auction deadline |
| Speed | Built for auction timescales, subject to valuation and legal work |
| Term | Short: typically months rather than years, often up to around 12 to 24 months |
| Interest | Usually monthly, often added to the loan or deducted at the start rather than paid each month |
| Costs | Interest plus arrangement fees, valuation and legal fees, and sometimes an exit fee |
| Security | The property you are buying, and sometimes other property you own |
| Repayment | In one go at the end of the term, from your agreed exit |
How it works, step by step
- Get pre-approved before the sale. Tell us about the property and your business, and we arrange a proposed budget in writing.
- Share the legal pack. Your solicitor and the lender review the title, searches and special conditions before you bid.
- Bid with your limit set. You know what you can borrow and what you need to put in yourself.
- Win, and pay the deposit. The deposit on auction day usually comes from your own funds.
- Valuation and legal work. The lender values the property and its solicitors complete their checks.
- Completion. The lender releases the funds through the solicitors in time for the completion date.
- Repay at the end of the term. You repay the loan from your agreed exit, often a longer-term commercial mortgage that we can arrange.
Your exit: how you repay
Every lender will ask how the loan will be repaid at the end of the term. Common exits are:
- moving onto a longer-term commercial mortgage once the property is yours
- selling the property, or another property or asset
- funds from the business or other sources
A clear, realistic exit is one of the most important parts of an application. Once you have bought with Auction Property Finance, Hammer Ready can arrange the longer-term commercial mortgage to repay it, so one broker looks after both stages.
Questions to settle before you bid
- What will the lender's valuation be? Lenders lend against their own valuation, not your winning bid. A low valuation means you fund the difference.
- How much can you put in? Lenders lend a proportion of the property's value, so plan your deposit and any shortfall in advance.
- What will it cost in total? Add up interest, fees, valuation and legal costs for the whole term, not just the monthly rate.
- What is your exit, and when? Agree it before you bid, with a realistic timescale.
- Has a solicitor read the legal pack? Title problems can delay or stop a lender.
Auction Property Finance with Hammer Ready
Hammer Ready arranges Auction Property Finance for pubs, hotels, care homes, shops, offices and industrial units you trade from. We can help you get pre-approved before you bid, fund a lot you have just won before the completion deadline, or release capital from premises you bought outright in the last six months. Once the property is yours, we can also arrange a longer-term commercial mortgage.
We work with limited companies, partnerships, LLPs, sole traders and PLCs, on amounts from £50,000 to £100 million. There is no broker fee, and all finance is subject to status and lender approval.
Get pre-approvedFor a full checklist of what to check before bidding, read our sister brand's guide, Buying Business Property at Auction: Things Worth Thinking About.
Hammer Ready is a trading style of MBA Capital Partners Limited. We are a commercial finance broker, not a lender, and arrange business finance that is not regulated by the FCA. All finance is subject to status. This guide is general information, not tax or legal advice.