Traditional auction vs modern method - two very different finance requirements
Traditional property auction (unconditional sale): The hammer falls, contracts exchange immediately. The buyer has 28 days to complete. If they fail to complete, they lose their 10% deposit and may be liable for additional costs. There is no finance condition.
Modern method of auction (conditional sale): The buyer pays a reservation fee (typically 2-4% of the purchase price, non-refundable) to secure exclusivity. They then have 28 days to exchange and 28 further days to complete. A mortgage is theoretically possible in this timeframe, but bridging is faster and more certain.
The finance implication is different for each. Traditional auction requires finance to be pre-arranged and capable of completing within 28 days - bridging is the only reliably fast enough option. Modern method allows slightly more time but the non-refundable reservation fee and the conditional timeline still make bridging the preferred choice.
Pre-arranged bridging - why it must be in place before the auction
Arranging finance after the hammer falls on a traditional auction is too slow for most cases. The 28-day completion window allows for valuation, legal due diligence, and drawdown - but only if the lender has already been identified and terms provisionally agreed.
Pre-arranged auction bridging works as follows:
- Before the auction: Share the auction catalogue entry, reserve price estimate, and planned use with us. We identify the most appropriate lender for the property type and issue an Agreement in Principle (AIP) against the specific lot.
- Before bidding: The AIP confirms the lender's appetite to advance subject to valuation and legal due diligence. You bid with confidence knowing the finance is provisionally available.
- After the hammer falls: We instruct the valuation immediately. The lender's legal team is already on notice. We drive the process to complete within 28 days.
- If you do not win the lot: No cost is incurred. The AIP lapses. No arrangement fee is charged at the AIP stage.
Auction due diligence - what to do before bidding
Auction lots are sold as seen - there is no subject-to-survey clause, no opportunity to renegotiate on survey findings. Due diligence before the auction is essential. What to review:
- Legal pack: Every auction lot should have a legal pack available before the auction. This contains the title, searches, special conditions of sale, and any known issues. A solicitor should review the legal pack before you bid - not after.
- Physical inspection: Attend the viewing, bring a builder, and get an indication of works cost. Do not assume you can walk in and out cleanly on a cosmetic refurbishment without inspection.
- Planning and licensing: Check whether the property has any planning restrictions, enforcement notices, or licensing requirements that affect your intended use.
- Reserve price vs guide price: The guide price is not the reserve price. The reserve is typically 10% above the guide. Budget for the reserve when modelling your deal.
- Special conditions: Read the special conditions of sale carefully. Additional buyer's premium (often 1.5-2.5% + VAT in modern method auctions), obligations relating to existing tenants, or completion conditions beyond the standard 28 days are common.
The 28-day completion process - what happens after the hammer
Once the hammer falls, the 28-day completion clock starts. Here is the typical sequence:
- Day 0 - Hammer falls: Contracts exchange. You pay 10% deposit immediately. You are legally bound to complete.
- Day 1 - Finance activation: We instruct the valuation, notify the lender's legal team, and co-ordinate with your solicitor to begin the legal process.
- Days 3-7 - Valuation: Physical valuation by RICS valuer (for most auction properties). Some lenders accept desktop valuation for lower-value residential properties, accelerating the process.
- Days 7-21 - Legal process: Lender solicitors and your solicitor work through title, searches, and special conditions. For lots with a clear legal pack already reviewed, this stage is faster.
- Days 21-28 - Drawdown and completion: Funds are drawn from the bridging facility and completion occurs on the agreed date. The seller's solicitor receives the balance of the purchase price.
The bottlenecks are valuation and legal. Both must be instructed immediately on the day of the auction. We manage this.
After the auction - structuring your exit
The exit strategy must be planned before the auction - not after. Common exits for auction purchases:
- Refurbishment and sale (flip): Buy a property needing work at a significant discount. Refurbish and sell at the higher GDV. The bridge covers purchase and works; the exit is the sale proceeds.
- BRRRR: Buy below market value, refurbish, refinance onto BTL mortgage at the higher value. Recycle capital for the next deal.
- Direct BTL (habitable property): Some auction lots are tenanted or immediately habitable. Bridge completes the purchase; a BTL mortgage replaces the bridge once underwriting is complete (typically 4-8 weeks).
- Resale without works: For lots bought significantly below market value where the property requires no works, a clean onward sale - with the buyer potentially paying full mortgage-financed market value - is a simple exit. Not always achievable within the 28-day window.