Auction Finance Guide: How Buying at Auction Works

Buying at a property auction is different from a standard purchase, and how quickly you are committed depends on the type of auction. At a traditional (unconditional) auction, contracts are exchanged when the hammer falls or, for an online traditional auction, when the lot is knocked down to you. From that point you are legally bound to buy, with no cooling-off period.

At a conditional auction, often called the Modern Method of Auction, the winning bidder usually signs a reservation agreement and pays a reservation fee rather than exchanging contracts on the day. Exchange of contracts then follows later, within the period set by the auction terms, with completion after that. The reservation agreement and fee carry their own obligations, so read the terms before you bid.

Because a traditional auction purchase becomes binding immediately, and a reservation commits you to fees and deadlines, buyers need to arrange funding before bidding, not after. The three main ways to fund an auction purchase are cash, a mortgage (where the timescale and property allow it), or bridging finance, which exists mainly to meet a deadline a standard mortgage can't.

There is no single legal deadline that applies to every auction. Instead, the completion date is set out in the special conditions of sale for that specific lot, which form part of the legal pack you (or your solicitor) should read before bidding.

Traditional auctions often allow around 20 working days or 28 calendar days from exchange to completion, but this is a common pattern rather than a rule — some auction houses and some lots set a different timescale. The Modern Method of Auction (sometimes called conditional auction) usually involves a reservation period before contracts are exchanged, followed by a further period to complete, giving more time to arrange finance, though the exact period and the fees charged vary by provider. Always check the actual figure for the lot you're interested in rather than assuming either timescale applies.

Fees for the Modern Method — including the reservation fee — vary between auction providers and are usually payable in addition to the purchase price. Read the auction's own terms carefully before bidding, as they are not standardised across the industry.

• Cash — the most straightforward route where funds are available, since there's no lending process to complete within the deadline. You'll still want your solicitor to review the legal pack before you bid.
• A standard mortgage — possible where the deadline is long enough (more often under the Modern Method than a traditional auction) and the property is in mortgageable condition. Full underwriting, valuation and legal work all still need to complete inside the deadline, so this route carries more timing risk than cash or bridging.
• Bridging finance — short-term secured lending designed to complete quickly, often used where the deadline is too tight for a standard mortgage, or where the property itself (because of its condition, for example) wouldn't qualify for one yet. It is usually more expensive than a mortgage and is intended to be repaid, or "exited", within a defined period — commonly through a sale or a remortgage once the property is in a mortgageable state.

Which of these suits you depends on the property, the specific deadline in the legal pack, your own finances, and how comfortable you are with the risks of each route. We can talk through your situation and explain which options are likely to be realistic before you bid.

• Get an Agreement in Principle — based on your likely maximum bid, from whichever route you expect to use. This is an indication, not a guaranteed offer; full underwriting still follows.
• Read the legal pack — have a solicitor review it before you bid. Auction sales often include unusual covenants, short leases or special conditions that can affect whether finance is available at all.
• Arrange a survey where possible — a survey appropriate to the property's age, construction and condition helps you understand what you're buying and whether a lender is likely to view it as acceptable security.
• Confirm your likely exit — if you expect to use bridging finance, think through in advance whether the property will be mortgageable afterwards. If it won't be, the bridge has nowhere to go.
• Check buildings insurance — ask your solicitor when responsibility for the property and buildings insurance passes to you under the auction contract, and arrange suitable cover from that point.
• Set a hard ceiling — covering the purchase price, buyer's premium, any reservation fee, stamp duty, legal costs and finance costs, so you know your true maximum bid.

An Agreement in Principle (sometimes called a Decision in Principle) is a lender's early indication, based on limited information, that lending of a certain amount may be available. It is not a formal mortgage or loan offer, and it does not guarantee that the lender will lend once it has completed a full application, valuation, underwriting and legal checks on the actual property.

Bidding on the strength of an Agreement in Principle still carries risk if the property later turns out to be unacceptable to the lender, or if your circumstances change. It's a useful guide to set a realistic maximum bid, not a guarantee that funding will complete.

The point of this example is the gap between the gross loan a lender agrees (£140,000) and the net advance that actually funds the purchase (£130,200). Because the deductions come out of the loan, the buyer has to fund that difference themselves. Always ask for both figures, in writing, before relying on a bridging loan to complete an auction purchase, and factor the difference into your hard ceiling.

The gross loan is the total facility amount a lender agrees to advance. The net advance is what's actually released to fund your purchase, after the lender's arrangement fee, and sometimes a period of interest, have been deducted upfront from the gross figure. On some bridging loans, other costs (such as a broker fee or an exit fee due later) can also affect the overall cost without changing the net advance itself.

Because auction completion deadlines leave little room for surprises, confirm the exact net advance in writing before you bid, so you know with certainty how much will actually be available towards completion, over and above your own deposit or savings.

• Legal pack — covers title, searches, leases (where relevant) and the special conditions of sale, including the completion deadline. Have a solicitor review it before bidding, not after.
• Insurance — ask your solicitor when responsibility for the property and buildings insurance passes to you under the auction contract, and arrange suitable cover from that point.
• Condition — non-standard construction, missing kitchens or bathrooms, short leases, or structural issues can all affect whether a property is mortgageable, now or after any works, which in turn affects whether bridging finance has a realistic exit.

If you use bridging finance to complete, you'll need a credible plan to repay it — usually either a remortgage onto a standard residential or buy-to-let mortgage once the property qualifies, or a sale. Lenders will want to understand this plan before agreeing the loan, and it's worth thinking it through, and discussing it with us, before you bid rather than once the bridging term is already underway.

Bridging finance is secured against the property, so if the exit doesn't go to plan and the loan isn't repaid, the property could ultimately be repossessed and sold to recover the debt — this is a real risk that should be weighed against the convenience of meeting a tight auction deadline.

If you're planning to bid at auction, it's worth getting an Agreement in Principle and understanding your likely funding route — and its true costs — before the day. Visit our auction bridging finance page to see how we can help you prepare.

If your plans involve more than one property, you can browse the wider bridging finance hub, and if you're considering a renovation or ground-up project after the purchase, see bridging finance for refurbishment and development.