Buying a property at auction can be a fantastic way to snap up a bargain, especially if you’re seeking a project like a “fixer-upper.” Auction properties often include homes that haven’t sold through traditional methods, making it possible to find attractively low prices. But something our mortgage advisors here a lot is “can you get a mortgage for an auction property”
Whether you’re an experienced buyer or entering the market for the first time, auctions can be a great way to acquire properties with potential. However, when it comes to financing, buying at auction requires some extra planning. Securing a mortgage for an auction property can be more challenging compared to standard property purchases. Quite often, many high street lenders or major banks will just say “no” and that’s it. Case closed.
This is due to a number of reasons, but namely, auction properties may have issues that make lenders more cautious, such as structural defects or legal complications. Securing a mortgage for an auction property is not impossible! At The Original Mortgage Company, we specialise in helping buyers like you navigate the complexities of auction finance. Read on to explore the options available, including mortgage solutions tailored to auction purchases and other financial alternatives that may suit your needs.
Can You Get a Mortgage for an Auction Property?
Yes, it’s entirely possible to get a mortgage for an auction property. While it might require more planning and paperwork compared to a conventional property purchase, a mortgage broker can guide you through the process. At The Original Mortgage Company, we’ll assess your circumstances, connect you with lenders who are experienced in auction financing, and provide expert advice to ensure you meet the auction deadlines. Even if you’re short on cash, a mortgage could still be within reach, and there are other funding options to consider as well.
How Does Buying a House at Auction Work?
Purchasing a property at auction can be an exciting opportunity, especially if you’re looking for a quick sale or a unique investment. Properties are typically listed online or in auction catalogues to attract buyers. Sellers set a reserve price—the minimum amount they’re willing to accept—and the property may also have a guide price to attract bidders. The winning bid must be higher than the reserve price, and the buyer will need to pay a deposit or reservation fee to secure the deal. While some buyers have the advantage of purchasing with cash, others may require a mortgage to finance their auction purchase.
Types of Auction Sales
When purchasing a property at auction, there are two main types of auctions you’ll come across: traditional and modern. Both have different processes, and the right one for you may depend on whether you are relying on a mortgage or cash purchase.
Traditional or Unconditional Auction Sales
Traditional auctions, also referred to as unconditional sales, are typically favoured by cash buyers and investors due to the fast-paced nature of the process. These auctions usually take place in a physical auction house, and successful bidders must pay a 10% deposit on the day of the auction. The remaining balance must be paid within 28 days. Due to the tight timeline, this type of auction is often more suitable for those with immediate funds available, but it can still be an option for mortgage buyers who are well-prepared.
Modern or Conditional Auction Sales
The modern method of auction, conducted online, provides more flexibility, making it a better option for buyers seeking mortgage finance. These auctions are open for bidding over a longer period, usually up to 30 days. If you’re the successful bidder, you’ll pay a reservation fee of around 5% and then have 56 days to complete the transaction, which gives you more time to finalise your mortgage.
The Original Mortgage Company can guide you through both auction types, helping you arrange your mortgage to meet the specific deadlines required by each method.
The Auction Property Mortgage Process
The mortgage application process for auction properties follows similar steps to a traditional mortgage. However, it’s important to note that not every auction property will be mortgageable. Lenders require the property to be in a liveable condition, with functional essentials such as a kitchen and bathroom.
Before attending an auction, the first step is to obtain an Agreement in Principle (AIP), which gives you a clear indication of how much you can borrow. This can provide peace of mind when bidding, as you’ll know your financial limit in advance. Once you’ve won the bid, the full mortgage application process can begin, including a property valuation to ensure you’re paying a fair price.
Pros and Cons of Buying an Auction Property
Pros:
- Potential to purchase properties at lower prices
- Great opportunity to put your own stamp on a property
- Less chance of being gazumped
- Fast transaction process
- Option to buy with a mortgage
Cons:
- Not all properties are mortgageable
- Bidding can be competitive and stressful
- Completion deadlines can be tight, especially for mortgages
- The fast-paced nature of auctions can be overwhelming
Auction Property Financing Explained
Financing an auction property, while similar in some ways to a conventional property purchase, has unique challenges that buyers should be aware of—particularly when using a mortgage. At The Original Mortgage Company, we understand the complexities involved in auction property financing and are here to help guide you through the process.
The First Step: Agreement in Principle
If you’re planning to use a mortgage to finance an auction property, your first step is obtaining an Agreement in Principle (AIP). This provides an indication of how much a lender is willing to loan you, based on your financial situation. While it’s not a full mortgage offer, it gives you the confidence to know your potential borrowing power before attending the auction.
Finding a Mortgageable Property
One of the key challenges of buying at auction is ensuring the property is mortgageable. Many properties listed for auction may have issues that prevent them from qualifying for a mortgage, such as structural problems or legal concerns. However, not all auction properties are non-mortgageable, and with the right research, you can find one that meets the criteria. We can assist you in identifying mortgage-friendly properties and reviewing legal packs to ensure the property you’re bidding on qualifies for mortgage financing.
Timeframes: Conditional vs Unconditional Sales
When buying at auction, timing is crucial. The sale process can vary depending on whether you’re participating in a traditional (unconditional) or modern (conditional) auction.
- Unconditional Sales require a 10% deposit on the auction day, with the remaining balance due within 28 days. This short window can be challenging for mortgage buyers, as the mortgage process typically takes longer to complete.
- Conditional Sales offer more flexibility, making them a better option for mortgage buyers. In this case, you still pay a 10% deposit, but you have 56 days to complete the transaction. This extended timeframe gives you the opportunity to finalise your mortgage application, carry out surveys, and ensure that everything is in order.
We specialise in helping buyers prepare for these deadlines, ensuring that your financing is arranged promptly so you can meet the auction conditions.
Bridging Loans: A Temporary Solution
In some cases, the mortgage application process may not be completed quickly enough to meet auction deadlines. If that happens, a bridging loan can provide a short-term solution, allowing you to cover the auction payment while waiting for your mortgage to be finalised. Bridging loans are a form of temporary finance that can help bridge the gap between purchasing the property and securing long-term financing. Our expert team can advise on the suitability of a bridging loan for your specific situation, ensuring you have the funds in place to complete your auction purchase without delays.
Factors to Consider Before Applying for a Mortgage
When considering buying an auction property, it’s essential to evaluate your financial situation carefully before applying for a mortgage. Here are some key factors to keep in mind:
- Your Financial Standing
Auction purchases typically require a 10% deposit to be paid immediately after a successful bid. Therefore, it’s important to ensure you have these funds readily available. Additionally, most lenders will offer you a maximum loan of around 4.5 times your annual income. Securing an Agreement in Principle (AIP) early on will give you a clearer idea of how much you can borrow, allowing you to plan accordingly. Securing a mortgage without a deposit for an auction property isn’t very likely. - Affordability
It’s not just about securing a mortgage—you need to ensure that the repayments will be affordable over time. Be sure to factor in the possibility of interest rate increases in the future, as this could impact your ability to meet your monthly payments.
How to Increase Your Chances of Mortgage Approval
If you’re aiming for mortgage approval, preparing your finances in advance is crucial. Here are some ways to improve your chances:
- Improve Your Credit Score: Check your credit report and work on resolving any outstanding debts. A strong credit score will make you more appealing to lenders.
- Save for a Bigger Deposit: A larger deposit can often lead to better mortgage offers and improve your chances of approval.
- Review Your Spending: Demonstrating responsible financial habits, such as budgeting effectively, will increase your attractiveness to lenders.
- Consider Boosting Your Income: This could be through taking on additional work or adjusting your financial strategies to improve your borrowing capacity.
Choosing the right lender is also vital. As a whole-of-market mortgage broker, The Original Mortgage Company can help you find the lender best suited to your unique circumstances—whether you’re self-employed, have a lower credit score, or face other financial challenges.
Exploring Alternative Financing Options for Auction Properties
If securing a mortgage for an auction property isn’t the right option for you, there are alternative financing routes to explore:
- Bridging Loans: These short-term loans can be a useful tool if you need quick access to funds while waiting for a mortgage approval. Bridging loans are particularly handy for auction purchases where time is of the essence.
- Cash Purchases: If you have access to sufficient funds—whether from savings, inheritance, or the sale of other investments—purchasing with cash eliminates the need for a mortgage altogether.
- Other Funding Options: Real estate crowdfunding and peer-to-peer lending can offer innovative ways to finance a property purchase. You might also consider a joint venture, partnering with another buyer to share the investment costs.
We Can Help You Get a Mortgage for an Auction Property.
Unlike high street lenders, we’re independent mortgage brokers. We have access to thousands of deals that your bank doesn’t. This means we can say “yes” when other say “no”. We can reduce the stress and make the process of securing a mortage for an auction property easy. Our team of mortgage advisors are on hand to meet you at our Hartlepool offices, or we can travel anywhere across Teesside to meet you at your home including Stockton and Middlesbrough, Wynyard, not too far away from our Hartlepool offices. All the way to Sunderland or Newcastle.
Contact us today to get the ball rolling on your next auction property mortgage.