Can you get a mortgage on an auction property?
Auction properties can be a great opportunity for savings when looking to get your foot on the property ladder. When buying at auction, you can often find the price you pay will be much lower. This can be a good deal for many people, with the possibility of a huge bargain.
Property investors can expand their portfolios, but they don’t need to buy with cash or have huge amounts of available funds. They can buy and renovate properties far more cheaply, meaning the potential for a much higher return on investment.
People with less funds to work with (e.g. first time buyers) can also potentially save massively as well. You don’t need to be a landlord or investor to buy a property at auction.
Even if buying at auction rather than through an estate agent, you should still be able to get a mortgage for these properties.
On this page we will help you understand how to buy a property at auction and how to access a mortgage for an auction property.
Buying a house at auction
Buying a house at auction is an increasingly popular choice. It allows you to buy at a far cheaper cost in most cases. With house prices rising coupled with interest rate increases, this can leave auction properties a very appealing option for many.
This can be very beneficial, leaving additional funds available for renovations, new furniture etc. The money could also be used to pay towards buying related expenses such as brokers fees, stamp duty etc.
There are a lot of pros and cons to buying a house or commercial property in this way.
We have put together this handy table to help demonstrate these below:
|Potential for buying a property at a much lower price than through an estate agent
|If caught in a bidding war, you may end up paying more than planned
|Generally, there will be no chain on these properties allowing you to move in or let the property far more quickly than usual
|If your bid is unsuccessful, you will lose the money invested in property valuations etc.
|Additional funds saved can be put towards property renovations
|It can take time for a property ideal for your needs to be available in an auction
|Possibility of increased return on interest for investors, if the property is bought considerably cheaper than one of that type would normally cost
|The deposit on the property needs to be paid on the day of the auction purchase, meaning easy access to these funds is essential
|You can see how much other buyers are willing to spend on the property and so can adjust your budget if necessary
|It is common for auction properties to be in a less than ideal condition, requiring considerable renovations
Buying a house at auction advice
When deciding to buy a house at auction, it is a good idea to do some research into this process. Being well prepared can stop buyers from getting flustered and potentially bidding far more than planned. Decide on the maximum bid you are happy with before attending the auction.
Investors who have bought houses in this way previously will have a good knowledge of how it works. If this is the first time you have considered this option, there a few key things it can be helpful to keep in mind:
- You only have 28 days from a typical purchase at auction to pay for the property, meaning having a mortgage offer already in place is the best plan
- If a traditional property auction, a deposit needs to be paid on the day of purchase. Make sure you have easy access to those funds if bidding
- Some more modern auctions do not expect the deposit to be paid, but will want you to pay a fee on the day to keep the property reserved – the purchase then needs to be completed within 56 days
- It is possible to bid before the auction date if especially keen on securing a particular property, but this bid can be rejected if not deemed a high enough amount
- If your mortgage is taking a while to come through and causing risk to the sale going through, you could take out what is known as a bridging loan. For more advice on this it is a good idea to speak to a loans specialist.
- It is important to remember there will still be additional fees involved in this type of purchase including legal fees (e.g. solicitor fees), survey fees and stamp duty. Make sure to include these costs when budgeting how much to spend.
- Assess how much you are willing to bid before attending the auction. Remember even though there will be a guide price, there will also be a minimum reserve price as well. If no one bids higher than this amount the property won’t sell.
How to buy a house at auction without cash
When imagining property auctions, it is easy to think only those with access to considerable funds can buy in this way. Buying with cash is a less common practice than you may think.
Auction properties don’t need to be bought outright with your own savings. It is still possible to secure a mortgage for an auction property. This can apply to both traditional mortgages and investors seeking buy to let mortgages.
Mortgage loans are an excellent way to be able to invest in property, without having to have saved tens if not hundreds of thousands of pounds first. Generally, a mortgage will require you to have saved a deposit amount of around 10% of the property value.
This can vary depending on the individual lender and mortgage type. Some first time buyers for example, can access a 95% LTV (loan to value) mortgage with only a 5% deposit required. Buy to let mortgages however will often require a larger deposit, around X of the property value.
It is worth keeping this in mind when saving as you may need to save more or less than you originally thought. Which mortgage is the best choice for your circumstances depends on why you intend to buy the property (as your main residence or to let out).
For more information on mortgages to buy a home CLICK HERE.
For more information on buy to let mortgages CLICK HERE.
Can you buy a house at auction with a mortgage?
Yes, you absolutely can buy an auction property with a mortgage. If looking at getting a mortgage for this reason, you approach a lender in much the same way as with any mortgage.
You follow the same process as with a standard mortgage application. Research the different types of mortgages, what mortgage deals are currently available and decide which interest rate is the most suitable for your budget.
Comparison across lenders will often reveal a much more reasonable rate so taking time to assess your options is a good idea. With many options available on the market currently, it can be difficult to know where to start when comparing lenders.
If this is the case, speak to one of our specialist advisers. We have over 20 years worth of experience in helping buyers secure mortgages with extremely competitive rates. We partner with over 50 lenders, meaning we are ideally placed to find you the best available deal.
How to buy a house at auction with a mortgage
The process of buying a house at auction will be the same whether paying cash or with a mortgage. The main difference is just the way the purchase is funded. If lucky enough to be a cash buyer, you simply pay the entire property price yourself.
With a mortgage, you pay a deposit for a loan from a lender, and they supply the necessary funds. You then usually repay the capital borrowed plus interest every month, unless you have taken out an interest only mortgage.
Of course, the process will slightly differ from a standard property purchase but there are many shared steps between the two.
The process of an auction purchase will be:
- Decide on the area you want to buy in
- Search for auction house catalogues
- Choose a property that seems suitable for what you want
- Arrange an appointment to view the property with an auctioneer
- Have the property valued
- Speak to a mortgage specialist or broker
- Apply for a mortgage with a lender
- Receive an “agreement or mortgage in principle”
- Attend the auction or bid online (or submit an early bid before the day)
- Bid on the desired property
- Pay either a 10% deposit or fee to secure the property
- Exchange contracts (within either 28 or 56 days depending on the auction type)
For further advice on how to apply for a mortgage, speak to one of our specialists or CLICK HERE for our extensive mortgage guide.