How To Get A Mortgage For An Auction Property

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Purchasing a property via auction is a great way to grab a bargain home or buy a property swiftly. Historically, auction purchases are made by cash buyers or investors but these days they can be a popular choice for a variety of people including those buying a property with a mortgage.

Can I use a mortgage to purchase an auction property?

It is viable to purchase an auction property with a mortgage, however it will require a quick turnaround as auction properties tend to require a 10% deposit on the day of the auction, which would be non-returnable if the buyer pulled out, and then a maximum of 28 days for completion.

It is also important to ascertain why the property is being sold at auction as this can affect mortgage approval.

Why do properties end up at auction?

There are numerous reasons that a property may end up at auction but one of the most alluring features of selling this way is the fast turnaround it brings. Often, it means that a property will sell for less than those advertised via an estate agent which is why purchasing in this manner is an appealing prospect to many. Reasons a property may be auctioned are:

  • Repossession
  • Previous owner passes away
  • Property has tenants
  • In a state of disrepair
  • Unmortgageable

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If you require a mortgage to buy a property, it is important to gather all the facts before you go to auction, as some of these reasons will mean it can only be purchased outright so it is important you are sure that finance can be secured on any property you bid on.

How does purchasing a property at auction differ from an open market?

When purchasing a property at auction, you ideally must have the funds in place prior to placing a bid, or if using finance, then you will need a mortgage in principle. This is because once the hammer falls you are locked into a purchase contract that is legally binding. There is a specific timescale, based on whether it is a conditional or unconditional mortgage, and the full finance amount must be available by this deadline.

Conditional vs Unconditional Auctions

An unconditional auction would be a better option for those seeking to purchase a property with a mortgage as an unconditional auction will require the auction winner to supply an immediate 10% deposit and then the remaining balance can be due in as few as 15 days but certainly no more than 28 days. An unconditional auction is not an unobtainable option for mortgage buyers but comes with greater risk and pressure due to the tighter timescale.

A conditional auction has a longer timescale that gives the buyer 40 days to exchange and complete the sale. This way of purchasing has a greater likelihood of success if you wish to buy to occupy with finance as there is more time to secure a mortgage as well as to conduct other usual house purchasing admin, such as surveys.

Should I buy a house at auction?

Buying a house at auction is a great way to snap up a bargain property and can cut the, sometimes, lengthy buying process. Those looking to buy an investment property or flip a house should consider buying at auction. Auction properties are also a good option for first-time buyers as they can reduce the number of costs, such as estate agent fees, and there is no chain involved so working quickly is less of an issue but be sure to have a mortgage in principle agreed before entering an auction.

Securing a mortgage for an auction property

If you plan to attend an auction to purchase a property, it is incredibly important you have the necessary funds in place, so if you aren’t a cash buyer, and need finance then secure a mortgage in principle beforehand. A mortgage in principle demonstrates that a lender is willing to loan a specific amount of money in theory and based on the circumstances provided.

To secure a mortgage in principle, you will need to provide your lender with proof of income so they can see that you have the means to pay for a property. Having this document at an auction demonstrates evidence of affordability but also gives you a maximum amount that you know you can bid.

Home buying via auction costs

Although the cost of a property may be cheaper at auction it is still important to budget for other fees and costs. The good news is that buying at auction means there are no estate agent fees to contend with, but other costs that still need to be factored in include:

  • stamp duty
  • legal fees
  • removal costs
  • valuation fees
  • deposits

It is also recommended that a survey is carried out on a potential property prior to the auction beginning as this avoids any nasty surprises when you move in; however, there is a chance that this is a waste of money if your bid is fruitless. Searches tend to be included in legal packs of conditional auctions but for unconditional, this is something else that will need to be budgeted for. Once you’ve purchased the property it’s wise finding a local property expert such as estate agents.

What if my mortgage lender can’t meet the completion deadline?

Buying a property at auction with a mortgage comes with its own set of stresses, the main one being time. Bidding on an unconditional auction with its short completion time frame can add pressure particularly if the lender can’t secure the funds within that period.

Selecting conditional auctions allows for a more feasible time scale to be worked to. In general, mortgages can take up to 6 weeks to arrange so conditional auctions provide enough time for completion.

A temporary resolution to financing an auction property whilst mortgage applications are pending is to secure a bridging loan which can help to pay costs and can be acquired in around 10 days. This type of loan comes with a much higher interest rate than mortgages so be sure to keep this as short term as possible if you need to utilise this option.

Are there properties I can’t purchase with a mortgage?

There are some properties sold at auction that won’t be eligible for mortgaging but one of the most important elements will be the condition. Lenders will generally only approve a mortgage application if the property is in a habitable condition with a fully functional kitchen, bathroom, and heating, without those you will not be able to secure a mortgage, therefore it is best to avoid any listings that have fallen into disrepair.

Properties with the following are deemed unmortgageable:

  • no or multiple kitchens
  • structural defects
  • short leasehold
  • sitting tenants
  • boundary disputes
  • non-standard construction properties, for example, timber framed, or concrete made
  • properties with Japanese Knotweed
  • properties with rot or damp

If you come across a property that has one of these concerns, but you are particularly keen on purchasing, consider discussing your options with a mortgage adviser who may be able to find a lender willing to accept the property but remember, don’t bid on one until you are sure a mortgage can be secured as if your bid wins at auction you are in a legally binding contract and could risk losing your deposit.

Auction properties and renovation

A popular reason for purchasing at an auction is for those wanting a renovation project but remember, lenders won’t mortgage a house in disrepair and so it might be necessary to consider a loan instead. Once the property has been improved to a mortgageable standard then you may be able to switch the loan to a mortgage.

Thorough research into a property’s condition prior to the start of an auction will allow you an insight into whether your mortgage is likely to be approved. Most auction houses tend to release their listings around four weeks before auction day.

Going, going…gone!

Auctions can be an overwhelming setting for those not familiar with purchasing a property in this manner; research will be key. It can be worth attending a few auctions as an observer beforehand to thoroughly prepare as when it comes to bidding and winning an auction, time will not be a luxury. Familiarise yourself with customs and procedures prior to attending an auction and most importantly, stick to your budget!

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photo of Millie Archer

Millie is a perfectionist with a passion for property and writing articles. You’ll find her researching the latest housing trends and the newest up and coming areas worth investing in. Read more about Millie here.

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About Millie Archer 142 Articles
Millie is a perfectionist with a passion for property and writing articles. You'll find her researching the latest housing trends and the newest up and coming areas worth investing in. Read more about Millie here.

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