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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 who will advise you on the process, they will have in-depth experience of buying a house at auction and can even do the bidding for you if needed.
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 at a proceeding auction.
You may also have to pay interest for everyday until the property is sold and might even have to pay the difference if the property finally sells for less than you initially bid.
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.
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.
Lenders will likely pull out of an auction sale if the property you have purchased does not meet their criteria.
Remember, most auction properties will need some sort of development and that's why they are being sold at auction at a significantly low price. Common properties to be found at auction are:
While the first three types of property 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.
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.
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 4 conveyancers to help you with the legal side that comes with buying a house.