Buying a Property at Auction

Can be an exciting and rewarding experience. It offers a unique opportunity to purchase a property quickly and potentially at a lower price than the traditional market. However, it’s crucial to approach the auction process with careful consideration and thorough preparation. MortgageTek specialises in commercial finance, and we will consult you on everything you need to know about buying a property at auction, from the benefits and pitfalls to the steps involved in securing a mortgage. Whether you’re a first-time buyer or an experienced investor, this guide will equip you with the knowledge and confidence to navigate the auction process successfully.

Understanding the Auction Process

Before delving into the intricacies of buying a property at auction, it’s essential to understand the basics of how an auction works.

 Types of Auction Sales

There are two types of auction sales: unconditional auction sales and conditional auction sales.

Unconditional Auction Sale

In an unconditional auction sale, the traditional approach is followed. Once the hammer falls and you win the bid, you are required to pay a 10% deposit immediately to secure the property. You then have 28 days to pay the remaining balance and complete the purchase.

Conditional Auction Sale

A conditional auction sale provides a bit more time and flexibility. When you win the bid, you are granted exclusive rights to the property for 20 days. During this period, no one else can take the property from you. After the 20-day exclusivity, you have an additional 20 days to complete the purchase, following the same process as in an unconditional auction sale.

Pros and Cons of Buying at Auction

Buying at auction proparties comes with its own advantages and disadvantages. Let’s explore some of the key pros and cons to consider before making a decision.

Pros of Buying at Auction

  • Potential for Lower Prices: Properties at auction can often be purchased at a lower price compared to the traditional market. This presents an opportunity for buyers to secure a bargain.
  • Quick Process: Buying at auction is significantly faster than the traditional buying process. Within a few weeks, you could be moving into or letting out the property.
  • Transparency: Auctions provide transparency as all bidders are present in the room, allowing you to see how much others are willing to spend.

Cons of Buying at Auction

  • Limited time frame: The auction process requires quick decision-making and completion. Failing to meet the deadlines may result in losing your deposit.
  • Condition of the Property: Lenders may refuse a mortgage if the property is not in good condition. It’s crucial to assess the property’s condition before bidding.
  • Research Intensity: Conducting thorough research on the property can be time-consuming. It’s essential to gather all the necessary information to make an informed decision.

Securing a Mortgage for an Auction Property

Contrary to popular belief, it is possible to secure a mortgage for a property purchased at auction. However, specific criteria must be met, and adequate preparation is crucial. Let’s explore the essential factors to consider when obtaining a mortgage for an auction property.

Property Condition

Lenders require the property to be in good condition before considering a mortgage application. Basic amenities such as running water and a working heating system are

Mortgage in Principle

Before attending an auction, it’s advisable to obtain a mortgage in principle. This preliminary agreement from a lender confirms your borrowing capacity and demonstrates your seriousness as a buyer. Knowing your limit helps in setting a budget and bidding confidently.

Completion Deadline

Once you win the bid at an auction, there is a strict completion deadline to meet, usually within 28 days. It’s crucial to work closely with your solicitor and MortgageTek your trusted mortgage adviser to ensure a smooth and timely completion. Failure to meet the deadline may result in losing your deposit and potential legal consequences.

Bridging Finance

If your mortgage application is taking longer than expected, a bridging loan may be a viable option to protect your 10% deposit. A bridging loan provides short-term financing until your mortgage is approved. However, it’s essential to carefully consider the costs and terms associated with bridging loans before proceeding.

 Preparing for a Property Auction

Preparing adequately for a property auction is key to making an informed decision and increasing your chances of success. Let’s explore the essential steps to take before attending an auction.

 Property Viewing

Before placing a bid, it’s crucial to thoroughly assess the property by setting up a viewing. This allows you to understand the property’s condition, potential renovation requirements, and overall suitability for your needs. Communicate with the seller to arrange an open house or a private viewing.

 Property Survey

To gain a comprehensive understanding of the property’s condition and potential renovation costs, it’s advisable to obtain a property survey. A survey will identify any structural issues or necessary repairs, ensuring there are no unpleasant surprises after the purchase.

Solicitor Services

Engaging a solicitor is essential to ensure a smooth and legally compliant auction process. Your solicitor will conduct necessary checks on the property’s title and identify any potential legal issues. Seeking their guidance before bidding provides peace of mind and expedites the post-auction procedures.

 Budget Considerations

Before attending an auction, it’s crucial to calculate the total costs involved in purchasing the property. In addition to the mortgage, there are several other expenses to consider, such as:

  • Mortgage Arrangement Fee: Lenders may charge a fee for arranging the mortgage.
  • Legal Fees: Solicitor or conveyancer fees for their services.
  • Survey Fees: Costs associated with property surveys.
  • Stamp Duty: Tax payable on the property purchase.

Requesting quotes from multiple solicitors and surveyors will help you estimate your budget accurately. It’s advisable to set aside additional funds to cover unforeseen expenses that may arise during the process.

 Frequently Asked Questions

To address some common concerns and queries related to buying a property at auction, let’s explore a few frequently asked questions.

 Securing a Mortgage before an Auction

Q: How can I secure a mortgage before attending an auction? A: Consulting with MortgageTek is essential for the auction and can help you find the right mortgage. Obtaining a mortgage, in principle, demonstrates your financial capacity to the seller and helps you determine your bidding limit. After winning the bid, your solicitor will work towards completing the purchase within the specified timeframe.

 Completion Deadline Challenges

Q: What happens if the lender cannot meet the completion deadline? A: While rare, there might be instances where the lender fails to transfer the funds within the specified time. In such cases, it’s advisable to consult your solicitor to explore possible solutions, such as renegotiating a new completion date with the seller. Failing to meet the completion deadline may result in losing your 10% deposit and potential legal consequences.

 Mortgage Restrictions

Q: Are there any restrictions on the type of properties I can purchase with a mortgage?

A: Properties that are uninhabitable or have significant structural issues may not be eligible for a mortgage. Additionally, properties with existing tenants are generally not suitable for traditional mortgages, although some buy-to-let mortgages may be an exception. It’s crucial to assess the property’s condition and potential limitations before proceeding with a mortgage application.

Financing Property Renovations

Q: Can I finance property renovations with a mortgage?

A: Specialised house renovation mortgages are available to finance property purchases and renovations. Ask MortgageTek for the optimal mortgage Solution for you. However, lenders may require the property to be in a habitable condition before releasing funds. Extensive structural repairs may lead to the withholding of a portion of the mortgage funds until the renovations are completed.

Reasons for Properties Ending up at Auction

Q: Why do properties end up at auction?

A: Properties may end up at auction for various reasons, but typically it’s because the sellers are seeking a quick sale. Auctions offer a faster process, but sellers may accept a lower price compared to the traditional market in exchange for speed and convenience.

Types of Properties at Auction

Q: What types of properties are commonly found at auction?

A: Auctions feature a wide range of properties, including repossessions, probate sales, properties with tenants, dilapidated properties requiring extensive work, and properties that may be challenging to secure a mortgage for. These properties offer unique opportunities, but it’s crucial to thoroughly assess their suitability and potential risks before bidding.

Buying a property at auction presents a unique opportunity for homeowners and investors. By understanding the auction process, securing a mortgage, and adequately preparing, you can navigate the auction world confidently and make informed decisions. Remember to consult with MortgageTek, for your mortgage, conduct thorough research, engage professionals such as solicitors and surveyors, and assess the property’s condition before placing your bid. With careful planning and the right support, buying a property at auction can be a rewarding experience, offering potential savings and exciting investment opportunities.