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.<\/p>
If you don\u2019t 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.<\/p>
Research and preparation are always important when you\u2019re planning to buy at auction but especially if you need a mortgage. You need to make sure the property is mortgageable and that you\u2019ll be able to get the funds within the specified timeframe.<\/p>
When you buy on the open market, the purchase isn\u2019t legally binding until you exchange contracts once you\u2019re satisfied with the condition and legal aspects of the property.<\/p>
In contrast, when you buy at auction you are legally bound to buy the property as soon as the auctioneer\u2019s 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.<\/p>
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.<\/p>
There are also online auctions, known as \u201cthe modern method of auction\u201d or \u201cconditional auctions\u201d, where you submit your bid online during the auction period \u2013 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.<\/p>
The types of properties sold at auction often include repossessions and probate sales (where the homeowner has died), and the lender or deceased\u2019s family want to sell the property quickly and cheaply. The property may be in a poor condition but as long as it\u2019s habitable there shouldn\u2019t be too many problems getting a mortgage on it.<\/p>
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 \u2013 they don\u2019t have a working kitchen or bathroom, for example \u2013 lenders won\u2019t 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.<\/p>
Properties with tenants are also a problem as you won\u2019t 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.<\/p>
Other types of unmortgageable properties include ones that are unusually constructed, have defects or don\u2019t have a long enough lease if they\u2019re leasehold. These are ones to be particularly wary of.<\/p>
For these reasons, it\u2019s essential to make sure a lender will lend on the properties you\u2019re interested in before the auction.<\/p>
It\u2019s possible to get a mortgage on an auction property whether you\u2019re a first-time buyer or a more experienced one, as long as you do your homework.<\/p>
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.<\/p>
You should also check that the lender is willing to lend on the property (or properties) you\u2019re interested in by asking it to do a mortgage valuation. You\u2019ll need to be careful not to go beyond this price when you\u2019re bidding at the auction as it could cause problems with your mortgage application.<\/p>