How to Get a Mortgage For a Property Being Sold at Auction

Most of us buy our home through a process known as private treaty. This means that, in England and Wales at least, we search a specific area for a suitable home and once we’ve found the place of our dreams we make an offer to buy via the selling agent.

An alternative way to buy is the public auction. Buying at auction can be fun but you need to know what you are doing if you aren't to make some very costly mistakes. First of all, it's worth understanding how buying at auction differs from buying by way of private treaty.

In simple terms, if you bid for a property at auction you should know the following;

1. Once the hammer drops in the auction room a contract to buy the lot has been created. This is serious. Failure to stick to the terms of the contract by either party can result in significant financial loss.
2. It is usual for the buyer to write a cheque for 10% of the purchase price there and then. You might even have to pay by banker’s draft. This deposit is at risk if you fail to proceed to completion. You might also be sued for damages or for what is called specific performance, meaning that a court might force you to buy the property! Alternatively, you might have to pay costs incurred in reselling the property and make up any shortfall in the sale price!
3. It is assumed by the auctioneer and made explicit at the auction on sale day that all the searches and legal inquiries will have been undertaken by your legal representative prior to the auction. It's usual for the seller to provide searches and a legal pack but it's up to you to check these and be ready to sign the paperwork immediately after the auctioneer's gavel falls.
4. It's not unusual for a completion date to be set 4 weeks after the auction. It's therefore imperative that you have a formal mortgage offer in place prior to attending the auction. An offer in principle is not the same as a formal mortgage offer but it might be all you can obtain at that time. If you commit to the purchase before you have funds available to you, you are taking a risk.

For these reasons buying at auction is normally the domain of the more experienced cash buyer; but not exclusively. It's not unusual for property that forms part of a deceased estate or property being sold by a mortgagee in possession (repossessed property) to be sold at auction.

If you decide to bid at auction there are some lenders that are happy to work with you. This might even include offering a bridging loan (a short term loan which will be repaid by a longer term mortgage a few weeks or months after you have completed on the purchase). The availability of bridging loans will depend largely on how large a deposit you have and how appealing a credit risk you are to the lender. It’s sometimes necessary to arrange a bridging loan when you still have another property to sell.

In order to have the best chance of successfully buying a property at auction there are some things you can do.

They are;

1. Research the market well and take some time to understand values in the area of search
2. Raise as much cash as possible and have it available to you in a bank account or short notice savings account.
3. Attend a few auctions first to get an idea of how it all works.
4. Make sure you complete the property bidder registration forms before sale day.
5. Examine the legal pack before sale day and have your solicitor check all the paperwork for you.
6. Check there are no changes to the pack or the terms of sale on the day of auction.
7. Make sure you have a suitable person physically inspect the property on your behalf and consider commissioning a structural survey.
8. Speak with the auctioneer before the sale and make sure he/she knows you are interested. If the lot doesn't sell, see him again. Lots of deals are done post auction with underbidders, once the dust has settled!
9. If you are unsure how much it will cost to get work done, get some estimates in advance from builders.
10. Make sure you are aware of all the costs involved and when they must be paid. Some auctioneers charges buyers a premium (a fee calculated as a percentage of the sale price). Check!

Auctions are still a great place to secure a bargain, but beware. They are full of professionals and if you are new to the game, it can be a scary place to buy the most expensive asset you may ever own.

For more information contact us or speak to a mortgage adviser on 01628 507477.