Buying at auction can be a great way to obtain property with huge potential or unique character. The buying process is much quicker than the conventional route as you effectively exchange contracts when the hammer goes down, pay a 10% deposit on the day, and you then normally have 28 days to complete (get the keys).
If you are unable to complete in the given timeframe you may lose your deposit, so it is vital to ensure any mortgage you need has been agreed in full (not just in principle) prior to the auction.
An independent mortgage adviser can help you find a lender that accepts full applications prior to auction and one that can work quickly, but be warned, there is no guarantee you will get the mortgage offer and it is likely to cost you a good chunk of money whatever happens.
The lender will require a basic valuation to be carried out by a surveyor and you normally pay for this (plus any booking or admin fees they may charge) on application. As well as assessing the property’s present value, the surveyor will identify any potential issues and may request further reports (e.g. damp, structural etc). These will need to be carried out at further expense and within the short space of time you have, with no guarantee the findings will lead to a positive result. By this time you may have paid over £1,000 to be told you cannot get the mortgage until the work is done, but you cannot do the work (or even buy the property) without the mortgage!
Even if you do get the mortgage agreed you may not win the property so whatever happens you must be prepared to lose some money. It is far better to lose a few hundred making sure the funds are available than to lose 10% of the purchase price finding out they are not.-
Of course the safer route is to be a ‘cash buyer’. If you are not lucky enough to have the money gathering dust in a savings account, you might be able to release equity from your home or other properties. This should remove the uncertainty of whether the property is going to prove acceptable to the lender. Again your mortgage adviser can help you with this and should explore these options first (in my opinion).
If all this hasn’t scared you off this is roughly how the whole process works from start to finish:
- Find out what your financial options and limits are before all else. An initial chat with a mortgage adviser is usually free.
- Research auctioneers in your chosen area and get on their mailing lists.
- Once you spot a property that interests you go and view it and take a builder or surveyor for their professional opinion and quote if it needs work. If costs are more than you anticipated you might need to reassess the feasibility with your mortgage adviser.
- If finances look OK in principle and you find a property you want, get your full mortgage application submitted and make sure the lender knows the date of the auction. You should apply for a mortgage based on your maximum bid.
- A detailed survey would be advisable on most auction properties which you can instruct yourself or usually ‘upgrade’ to (at extra cost) using the surveyor the lender instructs to do their valuation.
- Instruct a reliable solicitor to check the legal pack and carry out searches on the property.
- Have your buildings insurance ready to go, especially if the property will be empty or needs a lot of work, as this might require a specialist broker.
- Check the auctioneer’s website the day before the auction to ensure the property is still listed, especially if travelling a long way.
- Get there early with two forms of ID, proof of address and a bankers’ draft for 10% of your maximum bid, as usually an auction house will not accept cash and credit cards.
- Check auctioneer’s late announcement sheet on day of auction for any last minute changes.
- Keep calm, stick to your maximum bid and try not to scratch your head!