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Mortgages for buying at auction

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Buying a property at auction is a very different experience to buying in the more traditional sense.

You’ll have a much smaller timeframe to complete, and you might find a property that needs a lot of work.

On the plus side, properties at auction can often be a lot cheaper than standard homes.

Before you buy at auction, make sure you have everything in place so you’re ready to complete quickly.

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Can you get a mortgage on an auction property?

Yes, you can, as long as you meet certain criteria.

The property will need to be in a good condition before lenders will consider you, with things like running water and a working heating system. If it’s not somewhere you could move in to straight away, a mortgage provider could turn you down.

How does buying at auctions work?

Buying a house at auction happens very quickly, so you’ll need to be prepared.

It’s a good idea to get a mortgage in principle first so you’re ready to move straight away.

Once you win the bid, you’ll need to put down a 10% deposit immediately to secure the property. After that, you’ll only have 28 days to pay the rest.

Having a mortgage adviser in your corner, as well as a specialist conveyancer, can help you get everything sorted in time. Just be aware that if you don’t get the full amount processed in time, you’ll lose your deposit too.

Pros and cons of buying at auction

Buying at auction can be a risk, so you’ll need to work out whether it’s the right option for you before you go ahead. Here are some pros and cons to consider:

Pros

  • You could find a gem for a cheaper price than a standard home
  • The process is a lot quicker so you could be moving in, or letting the property out, within just a few weeks
  • All the other bidders will be in the room with you, so you can see how much they’re willing to spend

Cons

  • You’ll need to move quickly, or risk losing your deposit
  • If the property isn’t in good condition, lenders could refuse you a mortgage
  • Doing your research on the property you’re buying could be time-consuming

Types of auction sale

There are two types of auction sale, and one will give you a little more time than the other.

  • Unconditional auction sale - this is the traditional way of doing things. You’ll put a 10% deposit down and pay the rest within 28 days, completing on the property within that time.
  • Conditional auction sale - a conditional sale will give you a little more time to have surveys done and sort your mortgage out. For 20 days, you’ll have exclusive rights to the property, and no one else will be able to take it from you. After this time, you’ll have 20 days to complete in the same way a traditional auction would work.

How to prepare for a property auction

There are a few things you can do to make sure you’re fully prepared for a property auction:

  1. Set up a viewing

    You want to make sure you know what you’re getting yourself into before you put in a bid on a property. Chat to the person selling it to see whether they’re having an open house or whether you can view it on your own.

  2. Get a survey done

    A survey can tell you exactly what work will need to be done to the property, so it’s important to get one done as soon as possible. You don’t want to put lots of money down on a property and then find out you’ll need to pay more to get it into shape.

  3. Find a solicitor

    Your solicitor will be able to spot potential legal problems, like issues with the property’s title, before you head to auction. Knowing where you stand before you bid can give you peace of mind and also help to speed things up after the auction.

  4. Think about a bridging loan

    If your mortgage is taking a while to come in, and you’re stuck for options, a bridging loan could help you protect your 10% deposit. See whether it’s the right move for you and make sure you understand the costs involved with a bridging loan before taking one out.

Other mortgage costs to consider

Before taking out a mortgage, it’s worth calculating the total cost you’ll need to pay out in fees. There are a number of these to consider, including:

  • Mortgage arrangement fee
  • Legal fees for your solicitor or conveyancer
  • Survey fees
  • Stamp duty

Getting quotes from several solicitors and surveyors can help you to work out your budget. It’s a good idea to keep some extra cash aside in case anything else crops up that you might need to pay for.

Frequently asked questions

An independent financial adviser can help you find the right mortgage before you attend the auction.

Getting a mortgage in principle (or agreement in principle) will help the seller know you’re a serious buyer and tell you how much you can afford to lend.

Once you have this in place, you’ll know your limit when it comes to bidding. Unless there are any other issues with the property, this gives you a good idea of what the bank is willing to loan you.

After you’ve won the bidding, your solicitor will work to complete with the seller within 28 days.

It is rare that this happens, and your seller might be willing to renegotiate a new completion date with you so speak to your solicitor first to see what options you have.

If the lender doesn’t send your funds over by completion and the seller is standing firm, you risk losing the 10% deposit you’ve already paid, and the property itself. You could also have claims brought against you by the seller which could see you paying them for any losses they’ve experienced as a result of the sale falling through.

You won’t be able to buy properties that someone couldn’t live in, for instance, if there’s no kitchen or bathroom.

Dilipadation or structural damage, such as subsidence or Japanese knotweed, could also prevent you from taking out a mortgage on a property.

Even if you do manage to take out a mortgage on a property with these sorts of problems, you might have a hefty bill turn up when it comes to insurance or repairs.

You also won’t be able to get a mortgage for a property that tenants currently live in, aside from some buy-to-let mortgages.

There are specific house renovation mortgages on the market that could loan you the money to make the renovations, as well as the cash for the property itself. You might still have to show that the property is habitable before they release the funds to you, and that the renovations are more aesthetic than structural.

Bear in mind that if the property needs a lot of work, for example, a new roof, the mortgage lender might withhold some of the funds until the repairs are carried out.

There are a few reasons why a property could end up at auction, but it’s generally because the sellers want a quick sale.

Auction properties tend to sell for less so although the process is much quicker, the seller could miss out on a bit of extra cash.

There are a few different types of property that end up at auction, such as:

  • Repossessions - usually sold by the lender
  • Probate - where the owner has died and the relatives are selling their home on
  • Properties with tenants
  • Dilapidations - where extensive work needs to be carried out
  • Unmortgageable properties - where the seller is often looking for a cash sale

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