Why Auction Purchases Require Bridging Finance
Buying commercial property at auction is one of the most common reasons borrowers turn to **bridging finance**. The reason is simple: auction rules typically require completion within 28 days of the hammer falling, and no traditional commercial mortgage can be arranged in that timeframe.
Bridging finance **enables** auction buyers to meet tight completion deadlines while securing properties that are often available below market value. For experienced investors, auctions combined with bridging represent one of the most profitable routes into commercial property ownership.
How Property Auctions Work in the UK
Before exploring the finance, it helps to understand the auction process itself.
Traditional Auctions
At a traditional auction, bidding takes place live — either in a physical auction room or online. When the hammer falls:
- You exchange contracts immediately and pay a 10% deposit on the day
- You must complete the purchase within 28 days (some auctions allow 56 days)
- Failure to complete means you lose your deposit and may face legal action from the seller
This binding commitment is what makes auction purchases both attractive (certainty for sellers means lower prices) and demanding (you need guaranteed funding).
Modern Method of Auction
Some auction houses now use a **modern method** where:
- The winning bid secures an exclusivity period (usually 28 to 56 days)
- You pay a reservation fee (typically 3% to 5%) rather than exchanging immediately
- Completion happens during the exclusivity period
This method provides slightly more time but still requires fast finance. Bridging remains the most reliable option.
Online Auction Platforms
Platforms such as **Allsop**, **Savills Auctions**, **SDL Auctions**, and **Barnard Marcus** list commercial properties regularly. Many now offer online bidding alongside traditional room auctions, making it easier to participate from anywhere in the UK.
Pre-Auction Preparation: The Key to Success
The biggest mistake auction buyers make is not preparing their finance before bidding. By the time the hammer falls, it is too late to start looking for funding.
Step 1: Identify Target Properties
Auction catalogues are published 2 to 4 weeks before the auction date. Review the catalogue early and identify properties that match your investment criteria.
For each target property, assess:
- Current market value and the guide price (guide prices are often set below market value to generate interest)
- Condition and any works required
- Planning status and potential for change of use
- Rental income if currently tenanted
- Title issues — the legal pack should be available from the auctioneer
Step 2: Arrange Finance in Principle
Before the auction, speak to a specialist bridging broker and secure a **Decision in Principle (DIP)**. This gives you confidence that funding is available, subject to valuation.
At Commercial Mortgages Broker, we can arrange a DIP within 24 hours, often the same day. This allows you to bid with confidence, knowing your finance is lined up. [Contact us](/contact) to arrange pre-auction funding.
Step 3: Review the Legal Pack
Every auction property has a legal pack prepared by the seller's solicitor. Have your own solicitor review this before you bid. The legal pack typically includes:
- Title documents and title plan
- Local authority searches
- Special conditions of sale
- Lease documents (if the property is tenanted)
- Any relevant planning documents
**Key Takeaway:** Never bid at auction without having the legal pack reviewed by your solicitor. Hidden issues in the legal pack can make a property unmortgageable or significantly reduce its value.
Step 4: Arrange Your Deposit
You need 10% of the purchase price available on auction day (or the reservation fee for modern method auctions). This is paid by banker's draft or electronic transfer.
Separately, you need your full deposit for the bridging loan — typically 25% of the property value. Ensure these funds are accessible and sourced in a way your lender will accept.
Step 5: Set Your Maximum Bid
Based on your financial modelling, set a firm maximum bid and stick to it. Factor in:
- Purchase price
- Stamp Duty Land Tax (SDLT)
- Bridging loan costs (interest, arrangement fee, legal fees)
- Refurbishment costs if applicable
- Your target profit or yield
Auction fever is real. Knowing your maximum bid in advance prevents costly mistakes.
The 28-Day Completion Timeline
Once the hammer falls, the clock starts. Here is a realistic timeline for completing with bridging finance:
Day 1: Auction Day
- Exchange contracts and pay 10% deposit
- Notify your broker immediately (ideally they are already aware you are bidding)
- Your broker submits the formal application to the lender
Days 2-3: Application Processing
- Lender reviews the application and issues a formal DIP if not already in place
- Valuation is instructed
- Solicitors are instructed (ideally already on standby)
Days 4-7: Valuation
- RICS surveyor inspects the property
- Valuation report is prepared and submitted to the lender
Days 7-14: Legal Work
- Solicitors complete title checks and due diligence
- Lender reviews valuation and issues formal offer
- Loan documentation is prepared and signed
Days 14-21: Final Checks
- Any remaining conditions are satisfied
- Funds are prepared for drawdown
Days 21-28: Completion
- Funds are transferred and the purchase completes
- Legal charge is registered
This timeline has built-in contingency. Well-prepared buyers with experienced brokers and solicitors often complete within 10 to 14 days.
What Types of Auction Property Can Be Financed?
Bridging lenders are comfortable with most types of auction property, including:
- Vacant commercial units: Shops, offices, warehouses, and industrial units
- Mixed-use properties: Commercial ground floor with residential above
- Properties requiring refurbishment: Including those not meeting current mortgage criteria
- Land: With or without planning permission
- Tenanted investments: Properties sold with existing commercial leases
- Repossessions: Properties being sold by lenders or receivers
- Unusual properties: Former pubs, churches, schools, or other non-standard buildings
The flexibility of bridging lenders on property type is one of the key reasons they are the go-to finance option for auction buyers.
Typical Costs for Auction Bridging Finance
Here is a worked example for a £300,000 auction purchase:
- Purchase price: £300,000
- Bridging loan at 70% LTV: £210,000
- Your deposit: £90,000
- Interest rate: 0.75% per month
- Term: 6 months
- Arrangement fee: 2% = £4,200
- Valuation fee: £750
- Legal fees: £2,000 (yours) + £1,500 (lender's)
- Interest over 6 months: £210,000 x 0.75% x 6 = £9,450
- Total bridging costs: Approximately £17,900
If the property is worth £350,000 or more in its current condition, or can be improved to significantly exceed £300,000, the bridging costs are a modest price for securing the deal.
Use our [bridging calculator](/calculators/bridging) to model costs for your target property.
Exit Strategies for Auction Bridging Loans
Your **exit strategy** — how you will repay the bridge — is critical. Common exits for auction purchases include:
Refinance to a Commercial Mortgage
The most common exit. Once you own the property, you refinance onto a long-term [commercial mortgage](/services/commercial-mortgages) at a lower interest rate. This works well for investment properties with rental income.
Refinance to a Buy-to-Let Mortgage
If the auction property is residential or can be converted to residential, refinancing to a buy-to-let mortgage provides competitive long-term rates.
Sale of the Property
Some investors buy at auction specifically to refurbish and sell at a profit. The sale proceeds repay the bridge.
Sale of Another Asset
If you are buying the auction property to hold and your exit relies on selling a different property or asset, lenders will want evidence that the other sale is progressing.
Development Finance
For auction properties requiring significant development, you may transition from a bridge into a [development finance](/services/development-finance) facility to fund the works, with a longer-term exit planned thereafter.
**Key Takeaway:** Have your exit strategy planned before you bid. Lenders will want to see that your exit is realistic and evidenced. A DIP from your refinance lender strengthens your bridging application significantly.
Common Pitfalls at Auction
Bidding Without Finance in Place
The single biggest risk. If you win a lot without funding arranged, you may fail to complete, lose your 10% deposit, and face legal action.
Not Reviewing the Legal Pack
Legal issues discovered after exchange — restrictive covenants, boundary disputes, contaminated land — can make a property worth far less than you paid.
Underestimating Refurbishment Costs
If your investment case relies on adding value through works, get accurate quotes before bidding. A 20% cost overrun can turn a profitable deal into a loss.
Ignoring SDLT
Stamp Duty Land Tax on commercial property in England can be significant. At £300,000, SDLT is £4,500. At £500,000, it is £14,500. Factor this into your calculations.
Choosing the Wrong Lender
Different bridging lenders have different appetites for auction property. Some are faster than others. An experienced broker ensures you are matched with a lender who can deliver within your timeline.
Why Use a Broker for Auction Finance?
Auction bridging finance **requires** precision and speed. A specialist broker:
- Pre-qualifies you before the auction so finance is ready to go
- Identifies the right lender for your specific property and circumstances
- Coordinates the process between you, the lender, the valuer, and the solicitors
- Troubleshoots issues that arise during the 28-day window
- Negotiates terms to secure the best available rates and lowest fees
At Commercial Mortgages Broker, auction finance is one of our core specialisms. We understand the pressure of the 28-day deadline and structure every application for speed.
[Get in touch](/contact) before your next auction to arrange finance in advance.
Frequently Asked Questions
Can I get bridging finance approved before the auction?
Yes, and you should. A Decision in Principle (DIP) can be arranged before auction day, giving you confidence to bid. The DIP is subject to a satisfactory valuation of the specific property, which happens after you win the lot.
What deposit do I need on auction day?
You need 10% of the purchase price on the day of the auction, payable by banker's draft or electronic transfer. This is separate from the deposit required for your bridging loan.
What happens if the valuation comes in low?
If the surveyor values the property below your purchase price, the lender may offer less than expected. You would need to bridge the gap with additional cash or negotiate with the lender. This is why it is important to research values thoroughly before bidding.
Can I buy auction property through a limited company?
Yes. Many auction investors use limited companies or SPVs for tax efficiency. Most bridging lenders are comfortable lending to companies, though directors usually need to provide personal guarantees.
Is bridging finance available for Scottish auctions?
Yes. The auction process in Scotland differs slightly (with a closing date system for some sales), but bridging finance is available for Scottish commercial property. Lenders familiar with Scottish law will handle the legal differences.
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*