How Can I Buy Auction Houses in the UK Using Special Loans?


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property auction investing with dscr

What is a Property Auction?

A property auction is when houses and buildings are sold to the highest buyer. There are many property auctions all over the UK. People and companies go to these auctions to buy houses and buildings very quickly.

At an auction, the bidding starts low. Buyers offer more and more money, trying to have the highest bid. When the bidding stops, the last person to make an offer buys the property. This happens very fast – a property can sell in just a few minutes!

Auctions allow buyers to get good deals on properties. Often, auction houses sell for below market value. This is because the sellers need to sell their property fast.

Why Do People Buy Auction Houses?

There are a few main reasons people buy auction properties:

  • To fix up and resell for a profit – Many auction houses are older or need work. Buyers will buy these houses cheaply, fix them up, and then sell them for more money.
  • To rent out – Investors will buy auction properties to rent out. The cheap price allows them to collect good rent payments each month.
  • To redevelop – Developers buy auction properties to knock down old buildings and build new ones. The low auction price makes this worthwhile.

No matter the goal, auctions allow buyers to get properties well below normal prices. This means big opportunities for profits!

How Does Auction Finance Work?

Buying a property at auction means paying the full price on auction day. This is difficult for most buyers.

This is where auction finance comes in. Auction finance provides short-term loans to buyers so they can pay for the property.

Here’s how it works:

  1. Before the auction, the buyer finds a lender and gets pre-approved for a loan.
  2. At the auction, the buyer wins the bidding and buys the house.
  3. The lender quickly provides funds so the buyer can pay for the house.
  4. The buyer now owns the property. They get time to renovate and resell or refinance into a normal long-term mortgage.

Auction finance makes it possible to buy auction properties you normally couldn’t afford. The lender takes on the risk for a short time before you find other financing.

What is a DSCR Loan?

DSCR stands for “debt service coverage ratio“.

A DSCR loan looks at how much net income a property creates to determine how big of a loan you can get.

With a normal mortgage, the lender looks at your income, credit score, and down payment amount. With a DSCR loan, they ignore all that. They only care about the property’s cash flow.

For example:

  • A property rents for £1,000 per month
  • Expenses like taxes and insurance are £200 per month
  • So the net income is £1,000 – £200 = £800 per month

If the desired loan payment is £500 per month, the DSCR is £800 / £500 = 1.6.

Since the DSCR is greater than 1.0, the lender will likely approve that size of loan. The rent income is enough to cover the requested mortgage payment.

The key benefit of DSCR loans is that they allow you to buy more investment properties. You can keep acquiring cash-flowing houses without worrying about your personal income and down payment funds. The focus is on the property itself.

DSCR Loan Requirements

While DSCR loans base approval on the property, there are some typical requirements:

  • Down payment – Usually 20-30% minimum
  • Credit score – Often a minimum of 620
  • Property type – Must be an investment property that is rented out
  • Loan term – Typically 5 years or less

DSCR lenders want to see you have some skin in the game. But overall they are more flexible, which helps investors buy more rental properties.

Using DSCR Loans to Buy Auction Houses

Combining auction finance with a DSCR loan is a powerful strategy for real estate investing. Here are the steps:

  1. Find an auction property with strong rental potential.
  2. Get pre-approved for short-term auction finance.
  3. Win the auction bid and buy the property.
  4. Renovate and start renting the property.
  5. After a few months, refinance into a DSCR loan. This pays off the auction loan.

Now you own a cash-flowing rental property with great long-term financing. You can repeat the process to keep growing your portfolio.

The key is having funding sources in place beforehand. The right lenders allow you to jump on auction deals and then transition to DSCR loans.

Benefits of Using DSCR Loans

Using DSCR loans with auction properties provides many advantages:

  • Requires less of your own cash to buy properties
  • Grows rental portfolio faster by relying on property cash flow
  • Avoids hard lender fees with longer-term DSCR financing
  • Less risky than fixing and flipping auction properties
  • More flexible than traditional mortgages

By leveraging DSCR loans, you amplify your rental property returns over the long run.

Risks to Understand

Like any financing, DSCR loans do come with some risks:

  • If rental income decreases, loan repayment could be jeopardized
  • Balloon payments may require refinancing every 5 years or less
  • Minimum credit scores and down payments still apply
  • Cannot be used to buy primary residences

The right lenders will work through challenges, but have realistic expectations. Thoroughly evaluate each deal before purchasing a property.

Questions to Ask Lenders

If you’re considering DSCR loans and auction finance, ask lenders these key questions:

  • How quickly can you fund an auction purchase?
  • What are your rates and terms for both short-term and DSCR loans?
  • Do you require a down payment? If so, how much?
  • How long have you been providing these types of loans?
  • What happens if the property has vacancies or repair issues?
  • Are there prepayment penalties if I refinance?
  • What are your requirements in terms of property type, location, and condition?

Getting clear answers will help ensure you have access to funding so you can execute your auction investing strategy.

Top UK Lenders for Auction Finance and DSCR Loans

Here are some recommended lenders to contact if you need short-term or DSCR loans:

  • easyMoney – A UK lender providing both auction finance and DSCR loans for investors. Quick approvals and funding.
  • Foundation CREF – Experts in rental property lending across the UK. Flexible loans for auctions and long-term rentals.
  • Assetz Capital – Well-known peer-to-peer lender offering short-term bridging loans.
  • Octopus Real Estate – Major real estate lender with in-house property sourcing and renovation teams.
  • MT Finance – Specialist broker matching clients with top DSCR and bridging lenders.

By building relationships with trusted lenders, you can secure the financing needed to purchase UK auction properties.

Let’s Get Started!

Buying auction houses using DSCR loans is an effective real estate strategy with huge upside. It allows you to purchase below-market properties and finance them based solely on rental income.

If you’re ready to get started:

  • Find upcoming property auctions in your target areas.
  • Research auction finance lenders to have funding options ready.
  • Locate and evaluate potential auction properties for strong cash flow.
  • Line up renovation help if needed after purchase.
  • Submit loan applications to get pre-approved.

With the right financing and research, you can buy auction properties that make excellent long-term rentals. By leveraging DSCR loans, you can build a profitable rental portfolio much faster.


Hello! My name is Luna, and I am a freelancer in the finance niche. I have a passion for helping people understand their financial options and make informed decisions about their money. My website, DSCR Loan UK, serves as a resource for those looking for information on loans, budgeting, saving, investing, and more. I strive to provide practical and easy-to-understand advice that can help people make smart financial decisions.