How to Get a Mortgage for Buying at Auction
Written by Zenyx Griffiths
25th Nov 2019 (Last updated on 1st Apr 2020) 6 minute read
Getting a mortgage for buying a house at auction works in the same way as if you were buying through the more traditional route. You will have to contact a mortgage provider, either in branch or through a mortgage broker to let them know your situation. Your provider or broker will have dealt with a similar situation before, and will know how best to help you.
You should talk to your conveyancer as they advise you on the process due to their in-depth experience of buying a house at auction. They can even do the bidding for you if needed. This Compare My Move guide will share everything you need to know about getting a mortgage for buying a house at auction.
Buying a House at Auction Timescale
Buying at auction with a mortgage means you need to be confident that you can obtain the full amount of finance by the end of the 28-day payment period.
As soon as the gavel drops, 10% of the purchase price needs to be paid on the day. You will also need to show evidence that you will be able to pay the rest of the amount within 28 days. One of the main deterrents of buying at auction is the timescale you need to pay by.
If you fail to pay the full amount within 28 days of the auction, you will lose your deposit and could be liable to pay for the resale of the property.
You may also have to pay interest every day until the property is sold and might even have to pay the difference if the property finally sells for less than your initial bid. Your verified conveyancer will help you with the legal side of the purchase.
If you choose to use a type of auction like the sealed bidding process, then this timescale may differ as this results in a different process with other factors to consider before the sale is legally complete.
Mortgage in Principle for Auctions
Increasingly becoming one of the most popular options for buying a house, buying a house at auction will still require a mortgage if needed. You will need to apply for a mortgage in principle. Auction House claim that you can buy a house at auction with a mortgage only if the property is mortgageable without retentions.
A Mortgage in Principle is the certificate or statement from a lender to say they would be willing to lend you a certain amount of money in principle. The amount is based upon your financial background, including information obtained from your credit score. It'll give you an accurate idea of how much mortgage you can afford.
All mortgage lenders provide a Mortgage in Principle (MIP), otherwise known as an Agreement in Principle or Decision in Principle. Having an MIP is not only vital for buying at auction, it is reassuring as a buyer to know how much you can theoretically afford.
You will need an MIP certificate or statement available on the day of the auction as proof that you will be able to afford your purchased property.
It is important to understand that a Mortgage in Principle does not provide a guaranteed amount. Mortgage providers withhold the right to pull out of the lending process at any time under certain circumstances, leaving you with a huge problem. This is especially the case if you are trying to buy a house with bad credit.
Lenders will likely pull out of an auction sale if the property you have purchased does not meet their criteria.
Types of Property Sold at Auction
Most of the properties you'll find at auction will need some sort of development. That's why they are being sold at auction at a significantly low price. Common properties to be found at auction are:
- Repossessed and sold by a lender -
These are homes that are seized by the lender when the owner failed to pay the mortgage.
- Those whose owner has died and is being sold by relatives or a lender -
Properties that the owner has died often end up at auction as the family just want a quick sale.
- Currently tenanted -
This is more suited for a landlord with a buy-to-let mortgage. You won't be able to get a residential mortgage on a house with current tenants.
- Dilapidated -
This is a house that is too damaged and you may not be able to get a mortgage for.
- Unmortgageable for some reason -
This could be a home with subsidence or Japanese knotweed or built with concrete.
While the first three types will generally be fine with mortgage providers, you may have trouble with dilapidated properties. This is due to the amount of money you may have to spend redeveloping the site back into a livable state.
Potential Mortgage Problems at Auction
As the name suggests, you will obviously have trouble gaining a mortgage for unmortgageable properties. A property could be unmortgageable for any number of reasons. For example, lenders would be reluctant to lend on a flat with a very short leasehold. Likewise, your mortgage will not be approved if your purchased property is of an unusual structure, such as concrete.
You will also not be able to borrow if the property you purchased has subsidence or if your property survey finds evidence of Japanese knotweed. Auctioneers will often release their property catalogue at least four weeks before the day of the auction. In this time, you should start to prepare your mortgage, but also view properties that you are interested in.
Preparing for a Property Auction
To ensure you know exactly what you're working with when it comes to buying a house at auction, you should take time to prepare in advance. Here are some things you should do before you commit to buying a house at auction or through sealed bidding.
- Do Your Research - Just the same as if you were buying a house in the traditional method, you need to carry out some research of the area you'd like to buy a house in. Go and visit an area that you're interested in and then look what properties are for sale at the local auction.
- Arrange Viewings - Once you've discovered the property of your choice in a good location, arrange to view the property. Don't be afraid to ask questions on the property, you should know about anything and everything as you will be spending your money on it.
- Property Survey - If you are worried that the house will need too much work or you have a gut feeling, getting a property survey carried out will put your mind at ease. Your surveyor will be able to highlight any structural damage.
- Apply for A Mortgage in Principle - If you are buying at auction with a mortgage, you will need to apply for a mortgage in principle in advance. This will give you proof that you're in the process whilst at the auction.
- Have Finances in Place - You will need to pay 10% of the property on the day and the remaining 90% 28 days after the auction. This means you will have to have your finances in place before bidding at the auction.
Save on your Conveyancing with Compare My Move
When it comes to buying a house, whether that is at an auction or the traditional way, you will need a licensed conveyancer to help you with the process. At Compare My Move, we can connect you with up to 5 conveyancers to help you with the legal side that comes with buying a house.