The short answer is yes- auction properties are not only for the wealthy who have instant access to money. However, much like any financial transaction, there are a number of factors to consider. The process of obtaining a mortgage for an auction property differs considerably from the conventional property purchase route.
In this blog, we will explain all you need to know for buying at an action and getting your mortgage.
Understanding What Buying at an Auction Entails
Entering the high-paced world of property auctions? As exciting as it can be, the auction route is quite different from the standard property buying pathway. When your bid wins the day at auction, you’re promptly locked into a legal commitment to buy. It’s pretty immediate, so don’t let the auctioneer’s hammer catch you by surprise.
Usually, a 10% deposit is required on the day itself, followed by completion of the entire purchase within a 28-day window. This accelerated pace increases the importance of having your finances prepared before you set foot in the auction room. Remember, securing a mortgage can often be a lengthy process, requiring more time than you’d typically have post-auction.
Preparation is Key – Research and Surveying
Entering into an auction room without proper research under your belt can feel daunting, this is why advance preparation is paramount. Your initial homework should include an in-depth analysis of the properties that have caught your eye.
Don’t leave it to luck or intuition; arm yourself with as much information as possible. An auction isn’t the place for spontaneous purchases; it’s legally binding, and retracing steps isn’t an option. You need to have a clear idea about the condition of the property, potential renovation costs and any other surprises that might hinder your progress later.
Commission a Survey
One practical way to gain such insights is to commission a survey. This allows you to uncover any hidden issues or defects that might be hiding beneath the property’s surface. Think of it as an insurance policy against unpleasant surprises. It can also provide a ballpark figure for any potential repair costs, helping you make a more informed decision when setting your bidding limit.
Instant Conveyancing Quote
At Starck Uberoi we are committed to providing you with efficient and clear legal advice. We understand that finding a reliable conveyancer can be a time consuming and difficult task; to make it easier for you, we provide a free, online conveyancing quote calculator to save you time on your search.
Buy-to-Let
If your plan is to buy-to-let, a keen understanding of the local rental market is important. Do your research for the demand of rentals in the area, potential rental income and how this aligns with your financial objectives. This will give you a clearer vision of your possible return on investment (ROI).
In summary, don’t let the excitement of an auction cloud your judgement. Stay one step ahead with meticulous research and preparation. Be confident in your bidding, knowing that your decisions are backed by solid facts and a thorough understanding of the property you’re interested in. After all, knowledge is power, especially when it comes to property auctions.
It is important to note that, at auction, unmortgage properties are often sold for a low price. This may seem great but there are risk factors that you need to be aware of.
You may like to read: How to buy Unmortgageable Property
Getting Your Mortgage Agreed in Principle
With the fast pace of auction proceedings, having a mortgage agreed in principle is a critical piece of the puzzle. This arrangement, often called a ‘mortgage in principle’ or ‘decision in principle’, is a statement from your chosen lender suggesting how much they might be willing to lend you. It’s worth noting, though, that it’s not set in stone – it’s an ‘in principle’ agreement, not a full-fledged mortgage offer. However, it can provide a helpful indication of your borrowing power, allowing you confidence when bidding against other eager buyers at auction.
So, how do you go about getting a mortgage agreed in principle? The process usually involves a soft credit check and a review of your income and expenditure. Lenders will take a close look at your financial situation to assess whether you could afford to keep up with mortgage repayments.
Be aware that the amount suggested in a mortgage in principle is the maximum a lender may be willing to offer – it’s not an invitation to max out your borrowing power, Consider your own comfort levels with repayments and bear in mind any potential unexpected costs or changes to your circumstances in the future.
Remember, a mortgage agreed in principle isn’t a guarantee, but having one in your back pocket can give you a competitive edge in the environment of a property auction. Plus, it’s a reassuring signal to auctioneers and sellers alike that you’re a serious, well-prepared bidder – exactly the sort of person they’re hoping will raise their paddle on the day.
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We’re a six-partner practice accredited by the Law Society’s Conveyancing Quality Scheme (CQS) with £3 million professional indemnity insurance. Our quality service is recognised by our admission onto the residential conveyancing panels of major mortgage lenders, including bridging loan specialists.
Considering a Bridging Loan as a Backup Plan
Ever thought of a safety net while your property auction progresses? This is where bridging loans can be of use. These loans act as temporary financial fillers, ‘bridging’ the period between the successful purchase of an auction property and the finalisation of a long-term mortgage.
Given the fast pace of auction completions, the standard mortgage process may not keep up, putting your hard-earned auction win at risk. This is where bridging loans step in, providing an immediate but short-term financial solution.
However, don’t be swayed by the immediate relief they provide without considering their cost. Bridging loans come with their own set of caveats, most notably, their higher interest rates. Hence, they are best viewed as a temporary stand in, a short-term safety net, not a long-term financial strategy.
You may wish to read: Bridging Loan Conveyancing
Winning the Bid and Completing the Sale
The adrenaline rush when your bid wins at an auction is unrivalled, but remember, there’s work to be done post-celebration. The winning bid signifies the start of a time-critical process. It’s important to promptly pay your deposit, typically a requirement on the day of auction itself. This usually involves a cashier’s cheque, so ensure you’re well-prepared. The swift 28-day countdown to completion begins as the gavel falls, so everyday matters.
The Potential Outcomes
If you’ve done your groundwork, you should have your mortgage agreed in principle. With this under your belt, the next hurdle is finalising the mortgage with your chosen lender. This involves paperwork and patience as the lender dot their i’s and cross their t’s before releasing the funds.
However, should the process be slower than expected, or if your mortgage in principle didn’t pan out, don’t despair. This is the moment when your backup plan, the bridging loan, comes into play. As previously mentioned, this can provide immediate financial support whilst your mortgage is in the finalisation phase. However, given their high interest rates, it’s advisable to keep this phase as short as possible.
Whichever way the coin flips, whether it’s your mortgage or your bridging loan, the key is to act swiftly and efficiently, ensuring all goes smoothly in the last stages of your auction property purchase journey.
The Importance of Seeking Professional Advice
As you step into the world of auction properties, you’ll want professional advice at every step. Just as you wouldn’t venture into unknown territory without a map, navigating the complexities of securing a mortgage on an auction property is no different. That’s where the professional advice comes in handy.
Whether it’s an experienced solicitor, a savvy mortgage adviser, or an auction specialist, their expertise can be the key to guide you through the financial and legal intricacies involved. These experts have extensive knowledge of the property and financial markets, ensuring you have the most up-to-date, relevant advice tailored to your needs.
Think of them as your personal risk assessors, helping you avoid pitfalls, foresee potential challenges and most importantly, ensure you’re making a sound financial decision. Whether it’s understanding the implications of a mortgage in principle, the auction proceedings, or the ins and outs of a bridging loan, their guidance is a valuable asset.
Additionally, they can help you understand the fine print, explain any jargon and ensure you fully understand the implications of your decisions. Don’t underestimate the peace of mind that comes from knowing you’ve covered all your bases and are proceeding in the right direction.
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