If you didn't bid £500 why do they think you did?

I'm guessing it is not like an eBay auction where you can bid £500 and pay only £1 more than the last highest bid. It is a proper auction so you bid £500 that us what you pay even if the previous bid was only £401

Your bid is a contract so if you don't pay they can take civil action to recover the debt.

On the plus side if they are working fine you got a huge bargain.