Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
Buying repossessed property
If you’re thinking about buying a repossessed property to get a bargain there are some key issues you need to be aware of.
If you’re not afraid to take on a property that could be in a poor condition, buying a repossessed property is worth considering, whether it’s as a home or an investment.
In many ways, buying a property that has been repossessed is no different to buying any other property – you’ll need to carry out the same checks to satisfy yourself that you’re happy to take the property on for the price and the buying process is mostly the same. However, there are some specific issues you need to know about.
What is a repossessed property?
If a homeowner has fallen behind with their mortgage payments to the extent that they can’t be cleared, the mortgage lender will seize the property to sell it and recoup the money they are owed. Anything left over will be passed back to the original homeowner.
The mortgage lender is obliged to sell the property for the best price possible to protect the homeowner’s interests but will also want a quick sale to minimise its losses so repossessed properties can be sold for up to 30% less than market value.
While many of these properties will not be in a good state of repair, will have been empty for a while and may have had their fixtures and fittings stripped by the homeowner in an attempt to pay off their debts, you can also pick up repossessed new builds and buy-to-let properties where the owner got into financial difficulty.
As well as the potential to pick up a cheap property – although you should also look at the cost of comparable properties in the area – another advantage of buying a repossession is that it won’t be part of a property chain, which can often slow down the buying process and cause problems along the way.
Where to find repossessed properties to buy
Repossessed properties are often sold at auction as this guarantees a quick sale – the successful bidder must exchange contracts on the day of the auction and then usually has to complete the purchase within 28 days, so you’ll need to have funds available to pay 10% of the price on the day and then have your finances in place to pay the rest within the 28 days.
As with any property purchase, if you’re buying with a mortgage you should investigate your options beforehand and get a mortgage agreed in principle before you start looking at properties. Getting a mortgage on a repossessed property is no different than on any other.
You will also need to make sure your mortgage lender will be able to process your application within the 28 days so that you have the money you need to complete or take out a bridging loan as an interim measure, which is more expensive in the short term but quicker to arrange.
Contact auction houses in the area you want to buy in to get their catalogues of properties to be auctioned. Repossessed properties may be marked as ‘by order of the mortgagee’ or ‘by order of the receiver’.
The catalogue is usually published a month before the auction so you should view any properties you are interested in beforehand and get a full building survey done to find out about the condition as well as a valuation. Also, ask your solicitor or licensed conveyancer to check the documents in the legal pack the auctioneer provides. Bear in mind that these are costs you’ll have to pay even if you don’t win the auction.
Read our guide to property auctions for more on buying at auction.
Mortgage lenders also sell repossessed properties through estate agents, which could get them a higher price, but it may be less obvious that they have been repossessed so contact local agents to ask if they have any for sale. When you’re looking at property details, a giveaway could be that the property is empty, is in a poor condition, has limited information in the description and is being sold for less than you would expect.
Buying through an estate agent is riskier as you could be gazumped (when somebody else makes a higher offer that is accepted) at any time (unless you’re buying in Scotland), which means you’ll lose any money you have already spent. As the lender has to get the highest price possible for the property the estate agent will usually continue to market it and will also put a ‘notice of offer’ in the newspaper to invite other people to bid more.
Issues to look out for when buying a repossessed property
One disadvantage of buying a repossession is that the mortgage lender won’t know as much about the property when they are marketing it as the homeowner would – for example if there have been any issues with damp or problems with the neighbours – so you will have to accept that there will be unknowns.
There may be issues that stopped the homeowner being able to sell the property themselves and you may discover things later that cause problems or cost you money. It’s also likely that you will need to spend more to get the property up to scratch so factor this into your budget.
If the property is vacant the utilities and telephone will have been cut off so you will have to get these reconnected before you move in. There is likely to be a cost involved. And if you’re buying a repossessed flat, check whether there are any ground rent or service charge payments outstanding.
In the case of a buy-to-let property, you should check whether the tenant has moved out and handed back the keys or whether it’s being sold with a tenant in place.
Although the debts of the original homeowner shouldn’t affect you or your credit rating, it’s a good idea to check your credit reports in the months after the purchase completes to make sure there is no unusual activity. Also look out for any debt collection letters that arrive and contact the companies concerned (if you can tell who they are without opening them) to let them know the original homeowner has moved out.
Finder survey: Is it better to get on the property ladder when you can, or wait until you've got a larger deposit?
| Response | Male | Female |
|---|---|---|
| Both equally | 33.15% | 32.68% |
| Wait until you can put down a bigger deposit | 23.91% | 23.8% |
| Get on the property ladder (with a lower deposit) | 23.37% | 20.33% |
| Not sure | 19.57% | 23.19% |
Source: Finder survey by Censuswide of 1032 Brits, December 2023
We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables has the source: Moneyfacts Group PLC. In other cases, Finder has sourced data directly from providers.
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