Can you get a mortgage for an auction property?

Property auctions in the UK have become increasingly prominent in recent years as more and more prospective homebuyers attend auctions online. This virtual habit has steamed from the years of pandemic life. A time when auction houses and buyers alike had to figure out how best to proceed as lockdowns and social distancing rules came into play.

Following a similar path as virtually every other industry, the auction world turned to technology; live-streamed auctions, zoom calls and the like. As buyers adapted to these changes, they quickly got a taste for it. In 2020 alone, of the 651,987 homes sold in England Wales during 2020 – 2.3% were purchased via auction.

Source: Home Selling Expert

While digitally savvy auction houses can present opportunities for prospective bidders, they must consider their finances carefully. As a specialist lender, we’re often asked if it’s possible to get a mortgage for auction property.

In short, it’s possible, but there’s specific criteria that must you’ll need to consider. We’ll address your concerns by answering the following questions:

• What are the advantages of buying a property at auction?
• How can you get a mortgage for auction property during the completion period?
• How can you mortgage an auction property before attending an auction?
• Can you get a mortgage for auction property or are some properties exempt?
• How can you get a mortgage for auction property by using bridging finance?

Let’s start with a refresh on the basics.

What are the advantages of buying a property at auction?

One of the main advantages of buying property at auction is the speed at which the entire process generally completes by. The timeframe from bid to completion is often measured in weeks, not months.

Transparency is also a key benefit. Not only are you protected from gazumped, but you can also avoid the dangers of a broken property chain.

These risks shouldn’t be underestimated either. A survey from HBB Solutions shows 9% of buyers say they had been gazumped in the past 6 months. While thousands of buyers have seen purchases fall through due to property chain problems.

Read our Gazumped Britain II report for free.

Furthermore, auctions often present bargains to prospective homebuyers. It’s common to acquire real estate through an auction that might otherwise be unattainable or expensive.

Source: The Times, Which?

How to prepare for property auctions

While undoubtedly popular buyers need to keep a level head when getting ready for an auction, regardless of their experience. Doing your homework could save you both time and money down the line. It sounds obvious, but you’ll want to know what you’re bidding on inside and out.

Where you can, it’s good practice to visit a property before placing a bid. It may provide a clearer idea of why the property is being sold at auction. There are a few key questions that you should keep in mind when looking to purchase a property auction:

• Has the property been on the market before and if so, how long for?
• What is the current condition of the property, does it require renovation work? If so, you may wish to consider how much this may cost.
• How long were the previous owners at the property?
• What’s the building’s overall history?

If you’re new to purchasing properties at auctions and you’re looking for additional information and support to get started, download our comprehensive guide to property auctions.

How can you mortgage an auction property before attending an auction?

If you are not a cash buyer and require a mortgage to complete the purchase of an auction property, you must secure a mortgage in principle. To do this, it’s important to conduct sufficient research before bidding.

It’s often the case there will be underlying issues with the property that will need examination and repair. Otherwise, you might find yourself having to pay thousands of pounds more than you had originally factored in. Typically, this will require prospective homebuyers to complete a survey of the property.

It’s also essential to go to the auction with a clear idea of how much you can afford to pay for the property. Your mortgage lender will agree a mortgage in principle based on the value of the property, and you will be expected to pay the difference if you make a bid that’s higher than the auction estimate. Worse still, overpaying for the property could compromise the mortgage application and leave you in a difficult position.

If you’re looking for more information on property refurbishment, then download our Guide to Refurbishments.

How can you get a mortgage for auction property during the completion time period?

In truth, homebuyers should secure the mortgage before attending the auction. This is because auction houses will have a set completion period. Typically, homebuyers have 28 days to complete their purchase should their bid win. You will be required to pay a deposit fee on the day of the auction, this is generally 10% of your bidding price. Failure to pay your deposit, or complete within the set time period, could result in the loss of the deposit as well as other significant costs.

Alternative finance, such as a bridge loan, is often popular with auction purchases, as many lenders can release funds within day compared to the months you may have to wait with traditional long-term finance. However, that’s not to say that it’s impossible to purchase an auction property with a mortgage. The market is starting to see a rise in specialist mortgage products, for buy-to-let or commercial properties.

Find out more about securing a buy-to-let mortgage for a future auction purchase and discover our buy-to-let calculator.

Can you get a mortgage for an auction property or are some properties exempt?

When asking your lender whether you can mortgage an auction property, they’ll first consider the condition of the property before accepting your application.

Usually, lenders will only agree to a mortgage in principle if the property is in a liveable condition and can be let or inhabited immediately.

Without a working kitchen, bathroom or heating, you will be ineligible for a mortgage in principle.

How can you get a mortgage for auction property by using bridging finance?

Organising auction bridging loans in advance will not only decrease the risk of the purchase falling through, but it also sets a clear boundary when it comes to bidding.

The benefits of bridging loans are the speed and flexibility in which funds are deployed, helping prospective homebuyers complete the purchase long before the deadline. This gives you time to:

• Assess your financial options
• Find a deal that works best for you

We want homebuyers to feel confident in their financial situation, whether it be supplying an auction finance bridging loan, or providing refurbishment finance after the sale so you can buy, refurbish and refinance.

Complete with confidence

More buyers and investors are likely to investigate what are the advantages of buying a property at auction. The rapid pace of the wider market may force buyers to seek out chain-free opportunities – a key selling point of auctions.

Homes are selling at record pace. Purchases were agreed in 33 days on average in April 2022, from 67 days in the same month in 2019. A chain-free goldrush has emerged from this need for speed, with 73% of buyers who purchased a property to far in 2022 doing to without a home to sell, according to Hamptons estate agency.

Source: The Telegraph

As buyers find themselves having mere days to act, lenders who specialise in speed and flexibility will have a crucial role to play. We specialise in acting quickly, being able to issue funding in as little as 3 days. We also have years of experience in dealing with – and overcoming – the complex. Regardless of whether you’re a foreign national, or have a less than perfect credit score, we’ll work to provide you with support as the gavel drops.