Is It Possible to Get a Mortgage on an Auction Property in the UK?

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high-stakes decisions, but financing the purchase can be slightly daunting, particularly for first-time buyers and newcomers in the real estate industry.

In today’s article, we’ll tackle a common question potential buyers face:

Is it possible to secure a mortgage on an auction property?

This is a crucial question since not all buyers can afford to pay outright for a property, even at auction prices. Let’s start with the basics here so you secure the best deal when you are ready for it. Meanwhile, if your are already considering a mortgage on an auction property, and are ready to proceed, allow our mortgage consultants to help you find the best deals. Please, fill in the form below and submit it, and one of our seasoned mortgage experts will contact you shortly.

The Basics of Buying a Property at Auction

Auctions in the UK are fast-paced events where properties are sold as they are, and the winning bidder is legally bound to the purchase. It’s a different experience from the traditional property purchase.

Auction Catalogues 

The first step in buying an auction property is obtaining the auction catalogue. It provides essential details about the properties up for auction, including guide prices, location, and viewing arrangements, allowing buyers to research and select potential properties.

Property Viewing and Surveys

After identifying potential properties, the next step is to arrange viewings and carry out property surveys. It is crucial since auction properties may have issues that are not immediately apparent, and once purchased, any problem becomes the buyer’s responsibility.

Legal Pack

For each property of interest, buyers are supposed to request a legal pack containing crucial legal documents. A solicitor should review this pack to ensure there are no legal complications that could affect the property’s ownership or the mortgage application.

The Auction Event

On the day of the auction, properties are sold to the highest bidder. The winning bidder is legally obligated to buy the property, paying a deposit immediately, typically 10% of the purchase price, with the balance due within 28 days.

While buying at auction can offer several advantages, such as competitive prices and swift transactions, there are also risks, including potential property issues and the fast pace of the auction. Understanding these aspects is crucial when considering financing options like a mortgage on an auction property.

Taking out a mortgage for an auction property is feasible, but it comes with unique challenges due to the auction’s fast pace and the nature of the sales. Therefore, it is advisable that you seek help from a professional in the industry. For a quick and FREE consultation session, please submit your details below, and we will get back to you with the best market rates.

Financial Assessment

Firstly, you need to evaluate your financial status to decide your bidding capacity. Checking your credit score is also essential since it can significantly impact your mortgage eligibility and interest rates.

Property Type and Condition

The property’s type and condition significantly influence your ability to secure a mortgage. Lenders may hesitate to provide mortgages for properties deemed uninhabitable or severely damaged. A thorough pre-auction survey is crucial to identify issues that could affect your mortgage application.

Pre-Auction Mortgage Agreement

Time is a critical factor in using a mortgage for an auction property. As the property’s balance is typically due within 28 days post-auction, starting the mortgage process beforehand is advisable. Obtaining a Decision in Principle (DIP) or Agreement in Principle (AIP) confirms your borrowing capacity and shows sellers your seriousness in buying a property at auction.

Mortgage Application

With a DIP and a property selected, you can proceed with the full mortgage application. Remember, the mortgage lender will perform a valuation survey to ensure the property is worth your intended borrowing amount. If you don’t secure the mortgage within 28 days post-auction, you risk losing your deposit and the property.

Legal Considerations

Employ a solicitor to manage the legal aspects of purchasing an auction property. They will review the auction pack, including crucial property details like the title deeds and any existing legal issues. It is vital as auction properties are sold as seen, so the ‘buyer beware’ principle applies here.

Specialist Lenders

Not all lenders offer a mortgage on an auction property due to the risks and deadlines. Some specialist lenders and high-street banks offer dedicated auction finance products with quicker processes to meet the 28-day requirement. Working with a mortgage advisor familiar with auction properties can be beneficial.

Bridging Loans

If it’s difficult to secure a mortgage within the 28-day window, a bridging loan could be an option for you. These are fast, short-term loans with higher interest rates that bridge the gap until long-term financing is acquired. Whilst taking out a mortgage for auction properties can be complex, with the right planning, advice, and understanding, it’s achievable.

Buying property at auction can be exciting and potentially valuable, but it comes with risks and challenges to be aware of. Now, let’s see a few pros and cons of getting a mortgage on an auction property.

Pros

  • You can secure a property at a lower price than it might fetch on the open market, especially if there are few bidders.
  • The auction process is relatively fast compared to traditional property purchases.
  • Auctions often feature a wide range of properties, including unique and character-filled homes that might not be available on the regular market.

Cons

  • The biggest obstacle in securing a mortgage on an auction property is the 28-day completion period, which can complicate the application process due to possible delays.
  • If you can’t secure a mortgage within 28 days, you risk losing your deposit and possibly the property.
  • Auction properties are sold as is, and any problems become the responsibility of the winning bidder. Such issues could affect mortgage eligibility and resale value.
  • Auctions generally require a significant deposit, about 10% of the property price. With added costs like survey and solicitor fees, the process can be a tad bit expensive.
  • The thrill of an auction can lead to bidding beyond one’s means or the property’s value, potentially causing future financial difficulties.

While a mortgage on an auction property can be beneficial, it’s crucial to balance these potential risks against the advantages. Remember the golden auction rule: Do your homework before bidding.

Let our mortgage experts help you do the due diligence in a quick time.

FAQs

Can I get a mortgage on an auction property?

Yes, but plan in advance due to the 28-day completion window. Secure an Agreement in Principle from a lender prior to bidding.

Can I use a buy-to-let mortgage for an auction property?

Yes, a buy-to-let mortgage can be used if you intend to rent the property. Secure an Agreement in Principle before the auction.

What happens if I can’t secure a mortgage after winning a bid?

You may lose your deposit and still owe the remaining balance. Have a backup plan like bridging finance or a private lender.

Can first-time buyers get a mortgage for an auction property? 

It’s possible but riskier for first-time buyers due to the rapid completion and potential property issues.

Can I use a help-to-buy scheme for an auction property? 

Help-to-buy schemes are generally not available for auction properties; they’re mainly for new builds from participating developers.

Are mortgage rates higher for auction properties? 

Rates can be higher due to the lenders’ perceived risk. Several factors, including your finances and the property’s condition, can influence this.

Can I get a mortgage for a property in poor condition?

Lenders may be hesitant to offer a mortgage on an auction property in poor condition. Consider a renovation or bridging loan if substantial work is required.

Can I get a mortgage on a leasehold auction property?

Yes, but the remaining lease length can affect eligibility. Lenders often require at least 70-80 years remaining on the lease.

Remember, your circumstances are unique. Consult with a mortgage advisor or lender for specific guidance.

Securing a UK auction property mortgage is achievable with adequate preparation and knowledge of the process. As a buyer, you need to evaluate financial avenues, like traditional mortgages and bridging loans, and conduct thorough property assessments before bidding. Proper planning can make auction property buying profitable, but it’s essential to balance the inherent risks and rewards effectively.

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