Mortgages for Buying an Auction Property
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Written by:
Alison Gibson
Ascot Mortgage Expert
Last Updated:
07.10.2023
Written by:
Alison Gibson
Ascot Mortgage Expert
Last Updated:
07.10.2023
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.
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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.
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FAQ
A 60% LTV mortgage means you’re borrowing only 60% of the property’s value, with the remaining 40% covered by your deposit or equity. Key benefits include:
– Lower Interest Rates: Since lenders perceive a lower risk with a higher deposit, they often offer more competitive interest rates for 60% LTV mortgages.
– Greater Chance of Approval: A larger deposit often means a better likelihood of mortgage approval as it demonstrates financial stability and commitment.
– Smaller Monthly Repayments: With a lower loan amount and potentially reduced interest rates, monthly repayments might be more manageable.
Yes, it is possible to secure a 60% LTV mortgage for a second home or investment property. However, the criteria might be slightly different compared to a primary residence, and interest rates might be higher. Lenders will consider the potential rental income (for buy-to-let properties) and any other associated costs when assessing eligibility.
As with most mortgages, there can be various fees associated with a 60% LTV mortgage. These might include:
– Arrangement Fees: Charged by the lender for the mortgage product selected.
– Valuation Fees: For assessing the property’s value.
– Early Repayment Charges: If you repay the mortgage ahead of the agreed product term.
– Legal Fees: For conveyancing processes.
It’s important to discuss with your lender or mortgage advisor to get a full breakdown of all potential fees.
If you’re struggling to meet the repayments on a 60% LTV mortgage, it’s crucial to contact your lender as soon as possible. They might be able to offer solutions such as a payment holiday, changing the repayment terms, or other adjustments. If repayments are continually missed without any agreement, the lender has the right to start the repossession process. However, lenders generally view repossession as a last resort and will typically work with borrowers to find alternative solutions.
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Ascot Mortgages authorised and regulated by the Financial Conduct Authority and can be found on the FCA register (www.fca.org.uk) under reference 776062. The FCA do not regulate some forms of mortgages. The guidance and advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK. There may be a fee for mortgage advice. The precise amount will depend upon your circumstances but we estimate it will be £399 per mortgage account. Ascot Mortgages Ltd give you the option to pay a non-refundable fee of £879 payable with the application. If this option is taken, Ascot Mortgages Ltd will refund any procuration fee received by the lender.
Ascot Mortgages Limited is registered in England and Wales and have their registered office at 8 Webster Court, Westbrook, Warrington, WA5 8WD. The company’s registration number is 06764971.
We are a credit broker, not a lender. We work with the whole of the lending market. We may receive commissions that will vary depending on the lender, product, or other permissible factors. The nature any commissions model will be confirmed to you before you proceed.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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