Buying property at an auction with a mortgage

It is possible to get a mortgage to buy a property at auction but you’ll need to do your homework to make sure you can get the funds to buy the property you want.

Buying a property at auction can be a way to find a bargain and benefit from a more predictable buying process than if you buy on the open market.

If you don’t have the cash available to make the purchase, it is possible to get a mortgage but the nature of the properties often sold at auction and the tight turnaround times can make it tricky. You may also have to rule out certain properties.

Research and preparation are always important when you’re planning to buy at auction but especially if you need a mortgage. You need to make sure the property is mortgageable and that you’ll be able to get the funds within the specified timeframe.

How is buying at auction different to the open market?

When you buy on the open market, the purchase isn’t legally binding until you exchange contracts once you’re satisfied with the condition and legal aspects of the property.

In contrast, when you buy at auction you are legally bound to buy the property as soon as the auctioneer’s hammer falls and you have to exchange contracts and pay a 10% deposit there and then. With a traditional auction you then have to complete on the purchase within 28 days.

This means you need to have viewed the property, checked out its condition, ideally by getting a survey done, and asked your solicitor or conveyancer to examine the legal pack supplied for the property before the auction. If your bid is successful, you only have 28 days to get your mortgage arranged.

There are also online auctions, known as “the modern method of auction” or “conditional auctions”, where you submit your bid online during the auction period – usually 30 days. If your bid is successful you pay a reservation fee of up to 5% of the purchase price. You then have 28 days to exchange contracts and another 28 days to complete (56 days in total), so this gives you more time to get your mortgage in place.

Can you get a mortgage for an auction property?

The types of properties sold at auction often include repossessions and probate sales (where the homeowner has died), and the lender or deceased’s family want to sell the property quickly and cheaply. The property may be in a poor condition but as long as it’s habitable there shouldn’t be too many problems getting a mortgage on it.

The kinds of properties that could be problematic when it comes to a mortgage are dilapidated properties, because if they need work to be habitable – they don’t have a working kitchen or bathroom, for example – lenders won’t lend on them. If a lender is willing to grant you a mortgage it may retain some of the money until the property has been brought up to a sufficient standard.

Properties with tenants are also a problem as you won’t be able to get a residential mortgage on them. However, if you are buying the property to let, you may be able to get a buy-to-let mortgage.

Other types of unmortgageable properties include ones that are unusually constructed, have defects or don’t have a long enough lease if they’re leasehold. These are ones to be particularly wary of.

For these reasons, it’s essential to make sure a lender will lend on the properties you’re interested in before the auction.

It’s possible to get a mortgage on an auction property whether you’re a first-time buyer or a more experienced one, as long as you do your homework.

How to secure a mortgage

As soon as the auction catalogue is published, usually about a month before the auction, you should get a mortgage agreed in principle to find out how much a lender would be willing to lend to you. This will show you have a good chance of being able to borrow the money you need if your bid is successful. Make sure you factor in all the buying costs, such as legal fees and stamp duty, when working out your budget.

You should also check that the lender is willing to lend on the property (or properties) you’re interested in by asking it to do a mortgage valuation. You’ll need to be careful not to go beyond this price when you’re bidding at the auction as it could cause problems with your mortgage application.

Speaking to a mortgage broker will help make the process easier. As well as looking at the whole available market to find you the best deal, they will be able to identify mortgage lenders that will be able to process your mortgage application quickly enough and will be willing to lend on the properties you’re interested in.

What happens if the lender can’t meet the completion deadline?

If you are unable to buy the property within the 28 days because your lender hasn’t been able to process your mortgage in time, you’ll lose your deposit as well as the property and may have to pay for it to be sold at another auction.

There isn’t as much of a time pressure with a conditional auction but you’ll still usually lose the reservation fee if you can’t exchange or complete on time.

The option of using bridging loans

An alternative to a mortgage is a bridging loan, which can be arranged in as little as 10 days. This is short-term finance you put in place to buy the property and you then pay it off when you are able to get a mortgage. Bridging loans have higher interest rates than mortgages so should be taken out for as short a period as possible.

Compare bridging loans and rates

Table: sorted by monthly interest rate
Name Product Maximum LTV Loan term Loan amount Monthly interest rate
United Trust Bridging Loan
United Trust Bridging Loan
70%
1 month to 36 months
£75,000 to £25,000,000
0.48% to 1.1%
Hope Capital Bridging Loan
Hope Capital Bridging Loan
75%
3 months to 24 months
£50,000 to £500,000
0.54% to 1.05%
Octane Bridging Loan
Octane Bridging Loan
65%
1 month to 24 months
£150,000 to £25,000,000
0.55% to 1%
Lend Invest Bridging Loan
Lend Invest Bridging Loan
75%
3 months to 24 months
£75,000 to £25,000,000
0.55% to 0.94%
MFS Bridging Loan
MFS Bridging Loan
75%
3 months to 18 months
£100,000 to £0
0.65% to 1.25%
loading

Compare up to 4 providers

Overall representative example for regulated bridging loans
If you borrowed £258,000 over a 1-year term at 8.25% p.a. (fixed), you would make 12 monthly payments of £1,814.28 and pay £285,666.36 overall, which includes interest of £21,771.36, a broker fee of £995 and a lender fee of £4,900. The overall cost for comparison is 11.1% APRC representative.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

Pros and cons of buying at auction

Pros

  • It’s possible to find a bargain
  • The buying process moves quickly
  • You can’t be gazumped

Cons

  • If you’re outbid for the property, you’ll lose the money you spent checking it out before the auction
  • You have a limited period in which to arrange a mortgage and complete the buying process
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