Our guide on buying properties at Auction and specifically what you need to know when you are planning to take a Mortgage to buy a property at auction, including the risks involved you need to be aware of before you commit the winning bid and the gavel falls.
What should I be aware of when buying a property at Auction?
- Research the property and request the full property particulars before attending the auction, generally speaking if the property is being sold at auction there are often some challenges with the structure, condition or legal implication i.e. restricted covenants, access issues etc.
- Arrange a viewing and if possible ask a property expert, builder or surveyor to attend with you, you’ll understand the full extent of the property, it’s condition and any structural issues
- Request a review from a conveyancer of the legal pack so you understand if there are any legal restrictions or covenants on the property. The conveyancer will also provide you with insight into the Terms & Conditions of winning the auction e.g. how long you have to exchange, what fees you are liable for and what the consequences are of pulling out of the sale following winning the auction as the cost implications could be really high
What am I committing to once I’ve won the Auction?
- Terms and conditions of the auction apply as soon as the gavel falls, which normally requires you to part with some deposit upon winning the auction, liable for the insurance of the property and lastly you are committed to exchanging contracts within a set period – often 30-40 days
- Not meeting the exchange or completion schedule will normally result in incurring penalties each day beyond this timeframe and if you withdraw there are often fees and costs you are liable for including any deposit funds you’ve paid
What are the key considerations when taking a Mortgage for a Property at Auction?
- Make sure you have your finances in place upfront and follow our steps above in ‘what should I be aware of when buying a property at auction’
- First Time Buyer or existing Homeowner with a deposit readily available and you are buying a property at auction, it’s sensible to have your Mortgage Offer in place for the maximum bid you plan to place on the property BEFORE you attend the auction. This means a surveyor has attended the property and you have the finance agreed from the mortgage lender, if you get the price agreed at a lower level then your Mortgage Adviser can amend the offer according to the new price
- Specialist Auction Conveyancer is crucial when buying at auction as they are experienced in dealing with the terms and conditions of the auction and able to act at speed once you’ve won the auction
What are the risks if I do not have a Mortgage Offer in place prior to attending the Auction?
- Down-valuations from what you purchased the property for then the mortgage lender will only provide you a mortgage based on the value, not the purchase price
- Surveyor reports structural or issues with condition i.e. damp, roof problems etc. the mortgage lender may outright not lend on the property or you they may retain certain amount of mortgage funds
- Unable to secure a mortgage you can see the next section of the guide that explains this; however if none of these options are feasible then you would incur any penalties costs as advised in the terms and conditions of the auction when withdrawing from the sale
What other options are there if I can’t obtain Mortgage for an Auction Property?
- Other finance options e.g. bridging or development finance where you take a loan against the property to purchase it and complete the refurb work until the property is of a ‘mortgageable’ condition
- Once the property is of ‘mortgageable’ condition we can look to raise a mortgage to clear the outstanding bridging or development finance often against the new property value
- Alternatively you can complete the work and sell the property to clear the finance
NB All the above should be checked via a Mortgage Adviser to ensure criteria and affordability of the mortgage is achievable to clear the bridging finance and raise the Mortgage required before you are to attend and purchase the property at auction