Property auctions provide a fast-paced and exciting way of acquiring your next property or home, but the majority of potential buyers believe you have to be a cash buyer to take part. To the dismay of many, you can bid on an auctioned residential property using a mortgage if you’re ready and are aware of what’s involved. This article discusses how UK purchasers can secure a mortgage on an auction property, what the lenders will want to see, and the crucial stages to make your buy a success.
Why Purchase a Property at Auction?
Auctions have the potential to provide:
- Speed – the whole purchase can be finalised in a time span of just 28 days.
- Possible bargains – houses can be bought at less than market value.
- Individual opportunities – from quirky homes to development schemes.
But the urgency and surety of an auction also require that you have finance lined up beforehand in front of the hammer coming down.
Step 1: Tie down an Agreement in Principle (AIP) Upfront
Before attending the auction, consult an expert mortgage broker such as Oportfolio Mortgages. We can help you to obtain a Decision in Principle (also referred to as an AIP) from the appropriate lender. Finally, we can help you determine how much you can borrow and how much deposit you will have to provide. The majority of auction rooms will request proof of funds or a mortgage in principle before allowing you to place a bid.
Step 2: Understand Auction Timelines
When your bid is successful and the hammer falls, you will have to pay a 10% deposit immediately. This might be negotiable with various auction houses, so do check the small print! You are legally bound to complete the purchase, typically within 28 days. Because of this short timescale, your mortgage will need to be ready to draw down at once. An intermediary can identify lenders who are familiar with auction timescales.
Step 3: Check the Legal Pack and Condition of Property
Lenders will only lend you money for the purchase if the property is in a sound condition.
Before the auction:
- Check through the legal pack supplied by the auctioneer.
- Employ a solicitor to search for defects such as restrictive covenants, short leases or planning matters.
- Obtain a survey or valuation, especially recommended if the property is in need of repair.
If the property is uninhabitable (for example, no kitchen or bathroom), standard mortgage lenders may decline. In that case, a bridging loan might be needed first, with a plan to refinance to a standard mortgage once works are complete.
Step 4: Have Your Deposit and Fees Ready
In addition to the 10% deposit, you’ll usually need:
- The auctioneer’s administration fee.
- Your solicitor’s costs.
- Stamp Duty Land Tax (SDLT) – the normal rates, plus a 3% premium if this is to be a second home.
Step 5: Exchange and Mortgage Drawdown
Your solicitor and lender will complete the following once the auction has taken place:
- Final mortgage offer conditional on valuation and legal searches.
- Payment of funds within the 28-day timescale.
Missing the deadline of completion can lead to losing your deposit and being penalized, and therefore employing a broker who has expertise in auction finance is crucial.
How a Mortgage Broker Helps Auction Buyers
We help Oportfolio Mortgages clients regularly purchase finance for auction purchases. We source you lenders who will move as quickly as possible to meet tight auction timescales. Recommend mortgage products or short-term bridging loans if the property is in need of refurbishment. Streamline the paperwork and handle solicitors to keep everything moving.
FAQ: Purchasing a Home at Auction with a Mortgage (UK)
Q: Can I purchase at auction with a typical residential mortgage?
A: Yes, provided the property is mortgageable (i.e., has a functioning kitchen and bathroom). Your mortgage must be completed within the auction period.
Q: How much deposit do I need to pay at auction?
A: Typically 10% of the purchase price is paid on auction day.
Q: When do I need to complete by?
A: Most ask for 28-day completion, although some have 56-day “modern method” time scales.
Q: What if the property is not mortgageable?
A: You may need a bridging loan at first, then an everyday mortgage once the property is habitable.
Q: Do I pay the same level of stamp duty as an everyday purchase?
A: Yes. Everyday SDLT rules apply, including any 3% surcharge on second homes. Ready to Buy at Auction?
Buying at auction is an excellent method of obtaining a unique property or investment, but it entails planning and the correct finance. Call our team here at Oportfolio Mortgages today for advice on obtaining a mortgage for your next auction purchase.
