Buying at auction is hugely popular, for good reason.

It’s possible to pick up a bargain, both as a short-term renovation project or for long-term capital gains plus a rental income. It’s also popular with plucky homebuyers simply wanting to get onto the ladder at a price they can afford.

As well as the potentially low price, the purchase process moves extraordinarily quickly. You own the property within a month of auction day and, without property chains, there’s far less chance of the sale falling through.

Finding funding

It’s not usually possible to secure a mortgage within the timescales required by auction houses. The successful bidder exchanges contracts and pays a 10 per cent deposit on the fall of the gavel and must complete within 28 days.

In the current climate, it can take longer than a month to get an offer from some mortgage lenders, let alone complete.

On top of this, many properties sold at auction are simply not mortgageable. They often need major improvement works, which means a high street lender won’t touch them.

However, specialist short-term funding lenders are experts in this sector. A bridging loan is both quick and easy to arrange, enabling you to secure the property.

It is a short-term loan that usually lasts one or two years, giving you time to complete any renovation work and either sell up or refinance to a standard or buy-to-let mortgage.

Bridging loans are available up to 75 per cent of the auction purchase price, plus a lender may also cover the costs of refurbishment. Roma offers staged payments in arrears, for example, to help you fund any improvement costs and keep your cashflow moving.

If you are planning to buy at auction, follow these steps to ensure you can secure funding and meet the tight completion timescales.

Step-by-step guide to auction finance

1. Talk to a lender or mortgage broker before the auction. They will help you work out your funding options and give you an acceptance in principle, which means you can bid in confidence.

2. Gather all the relevant documentation your adviser or lender tells you they need in advance of the auction and before you apply for the bridging loan.

3. Make sure you have visited the property and had any checks or surveys done before the auction if required.

4. Download the legal pack for the property you want to bid for and have your solicitor go through it to check everything is in order.

5. On auction day make sure you have proof of ID and enough money to cover a 10 per cent deposit, available in cash or an easy-access account.

6. If you’re successful at auction, get the wheels in motion on your funding application. Don’t let it slip a few days, especially if you’re a first-time investor, because lenders need to scrutinise your credentials and the deal even more closely. The clock is ticking.

7. To apply for a bridging loan, you’ll usually need the following details:

• The auction sales agreement
• Proof of purchase
• Link to the property listing
• Evidence of your deposit monies
• Money to pay the valuation and legal fees
• Any other documentation your lender has asked for.

8. If the case is straightforward, some lenders, including Roma, will look at the application on the same day and make a lending decision.

9. Once the valuation is done and the report is back, the case is formally signed off.

10. When the solicitors are ready, the lender will release the monies to complete the purchase, well within the 28-day timescale. Service doesn’t stop at completion. The best lenders keep in touch, checking that improvement works are on track, so the loan can be exited successfully.

What should you look for in a lender?

Speed is clearly important, so ask prospective auction finance lenders about their current timescales. They need to be able to give you a decision in days and thefunds in weeks.

Experience in arranging to fund for auction purchases is also important. Ask the lender if they have experts who know the usual pinch points and pitfalls of auction purchases and how to navigate through them.

Remember, if you aren’t confident securing finance for your auction purchase, you can go to a broker who is experienced in arranging bridging loans.

They will advise you on which deal is most suitable and do the form-filling on your behalf. They’ll also chase the lender and solicitors and push the deal through to completion.