Auction finance for residential and commercial property lots

At a traditional auction, contracts are exchanged when the hammer falls. You become legally bound to buy, you pay a deposit on the day, commonly 10% of the price, and completion follows on the date set in the conditions of sale, often around four weeks later. The RICS Common Auction Conditions are widely used as the standard terms, with each lot's special conditions varying them. Online auctions follow similar rules, though some lots are sold on conditional terms with a reservation fee and a longer period to exchange.

If you fail to complete, you lose the deposit and can be liable for the seller's losses. That is why funding needs to be lined up before you bid, not after.

Your solicitor should review the legal pack before the auction, and your lender will rely on the same documents. Points that most often derail auction purchases:

• Special conditions that shorten the completion period or add costs payable by the buyer.
• Leases and occupiers: for commercial lots, rent, lease length, break clauses, arrears and overdue rent reviews; for residential lots, whether anyone is still in occupation, since a sitting tenant removes the vacant possession a renovate-and-sell plan depends on.
• VAT: if the seller has opted to tax, VAT is added to the price unless the sale is a transfer of a going concern; HMRC's guidance on opting to tax explains the rules. VAT on the price is cash you must find at completion, even if you can recover it later.
• Energy performance: a let commercial building generally needs an EPC of at least E for a landlord to grant a new lease, which affects lettability and value.
• Title and searches: missing rights of way, restrictive covenants and unregistered land all slow lenders down.

Bridging is repaid in one sum, so the lender will test how. For a house or flat bought to renovate, the usual exit is a sale once works are signed off, supported by sold prices for finished homes on the same street. A lot bought for its conversion or redevelopment potential often moves onto conversion finance or a wider property development finance facility once consent is secured. For a let commercial lot, the usual exit is a commercial investment mortgage once the purchase completes and any issues are resolved. Owner-occupiers buying their own premises at auction usually refinance onto a commercial mortgage; see also buying business premises. For a vacant lot, the lender will want a realistic view of how long letting will take and what rent it will achieve. A sale exit needs evidence of comparable sales.

Auction finance costs more than long-term borrowing, and fees on a short loan make up a large share of the total cost. If the valuation comes in below the hammer price, the lender lends against the lower figure and you must find the difference in days. If completion is missed, the deposit is at risk. And if the exit takes longer, extension fees and default interest can erode the margin the auction discount created. Buyers with enough cash sometimes complete with their own funds and arrange longer-term borrowing afterwards, avoiding bridging costs altogether. Our commercial property finance hub covers the longer-term options.