Buying an Auction Property - Mortgages

Buying an Auction Property

We’ve all seen the programme, ‘Homes under the Hammer,’ presenting the idea that wealthy investors Hoover up bargain-priced homes, which they then improve and sell on for a tidy profit. This is the common misconception of buying an auction property, that they are the milieu of the cash-buyer. But, this perception is wrong: anybody can buy at an auction, because it is possible to buy using a mortgage. The same is true for commercial and buy-to-let properties.

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The financial requirements for buying property at auction

To get a mortgage for auction property, the property must meet certain standards. Difficulties that you might run into include if you are looking to buy a house made from non-standard construction; a timber frame property; flats above shops; or a self-build property. Most auctions ask for proof of the mortgage arrangement at the time of purchase, or immediately afterwards, and they usually require evidence of a cash deposit (usually 10%) which can be paid immediately after the auction.

Types of properties sold at auctions

Many properties are auctioned off because they need to be sold, quickly. This is particularly the case in recent years, with a depressed housing market. Some properties might have been part of a deceased person’s estate, or they might be a former investment that needs some work doing, where the investor has run out of funds. Many properties are put through auctions as the result of repossessions, and it is estimated that in the first three months of 2008, just as the economic recession began, 455 properties were put through auctions in London for this reason alone. Whatever the reason for the property being in an auction, they can be a fantastic way of saving some money.

Buying at auction – advice for before you bid

The first thing is to do your research: like any auction, it is easy to get carried away with the thrill of the chase! Paying interest to a few properties, and researching property prices in your area, will help stop this. It is a good idea to get the property checked over by a builder before you go to the auction, especially if it needs some work doing on it, and also remember that once the hammer falls, you have offered to buy, not bid! If you subsequently pull out, you will certainly lose your deposit, and may even be liable for the seller’s lost fees or costs. As soon as you buy, get bricks and mortar insurance: this is often available to buy on the day.

Auction property sale prices and finding a ‘bargain’

Property prices at auctions reflect what the highest bidder is prepared to pay, in some cases this can reflect a pretty average price, whereas in other cases it might be significantly below the expected market value, but in reality they sell at the property’s true value, and this is the value in which the mortgage company will look at when determining the “market value”.

However, if you do manage to snare a real bargain, and you grab a property for significantly ‘below the market value’, then you could use a bridging loan (short-term loan) to purchase the property, and as soon as the property is then valued on the open market together with a record of the improvements made, then you can apply for a mortgage and pay off the bridging loan. This is what developers do who believe their improvements will add significant value to the property in a relatively short space of time.

Using a mortgage broker like Ascot Mortgages is critical for this sort of situation. Here at Ascot Mortgages, we are leading mortgage brokers and we have experience at arranging mortgages for all sorts of purchasers and properties. We can help you make sure that you have all your finances in place, so that when you go to an auction, you are in a position to buy, quickly, whether you choose to go down the mortgage or bridging finance route.

Ascot Mortgages offer a comprehensive range of mortgages from across the market. We are dedicated to providing the very best financial advice and the highest standards in customer service.

Please contact Ascot today, and you will be very glad you did.

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