Can I get a mortgage for an auction property?

If you love watching Homes Under The Hammer, buying a property in an auction might seem appealing. But if you haven’t got a large sum in savings, you may be wondering whether you can get a mortgage for an auction property.

The simple answer is, ‘yes’! But there are a lot of considerations to make about buying property at an auction.

Property auctions may appear to be exclusively for investors and landlords. But anyone can bid and buy! There are many pros and cons to aware of, however. The biggest drawback is needing to pay a lot more quickly than when buying privately.

That said, if you can get everything organised, then there’s no reason why you can’t buy at auction. There’s even a chance that you might grab a bargain.

Property auctions in 2022 were 24% higher than the previous year, so they’re clearly increasingly popular.

Can I get a mortgage for an auction property?

It is possible to secure a mortgage for a property you buy at auction. There are criteria you must meet before you are able to do so.

The main issue is that not all properties auctioned are eligible for financing from a mortgage lender. That’s because the property must meet certain standards.

How does buying at auction differ from the open market?

When buying on the open market, there are a number of steps required before you finally receive the keys. We’ve mentioned those steps before. When buying at auction, however, you are in a legally-binding contract to buy the property as soon as the hammer comes down.

The full cost of the property must also be paid within a certain time. That all depends on whether it’s an unconditional or conditional auction sale.

Unconditional auction sale

If your property is sold through an unconditional sale you must pay a 10% deposit as soon as the hammer falls. You then have up to 28 days to secure the rest of the funds. Failing to do so means you could lose your deposit and be liable to pay the full amount and the cost of reselling the property.

Conditional auction sale

These sales are better if you’re securing a mortgage to finance the purchase. The timescale is longer. You normally have 40 business days to exchange contracts and complete the sale, but check the Special Conditions of Sale that specify a different time limit. During this reservation period, the seller cannot accept other offers.

Securing a mortgage for an auction property

If you haven’t the funds to pay cash for the property then securing a mortgage is necessary. You will need to an agreement in principle which states that a lender is willing to lend you a certain amount of money. We’ve explained what an agreement in principle is in an earlier blog.

There are other ways in which you could finance an auction purchase by approaching the purchase from a different angle. For example, you could release equity from another property. By remortgaging your home you could release funds to become a ‘cash buyer’ at the auction. It’s all about taking a different approach, and it’s worth talking to a mortgage broker, such as The Mortgage Dog, for advice first.

Remember that lenders will only loan the agreed amount based on the price at which the property has been valued. An independent charter surveyor will value the property on behalf of the lender. If that valuation shows that the property isn’t worth as much as the purchase price you will need to fund any shortfall.

So, don’t get carried away during bidding – even if the property is your idea of a dream home!

Get a survey carried out before the auction, too, as you’ll then know about any potential expensive repairs. Budget for them in mind before you bid – and stick to that budget!

What about the completion deadline?

If the auction is an unconditional sale, then most lenders might not be able to meet the short timescale. But all is not lost. Some lenders specialise in quick decisions, which is why it is crucial to use a mortgage broker. They will know which lenders to turn to.

If you apply for a mortgage at your bank, they will only be able to offer you their mortgage products, which are most likely to take longer to arrange.

Choose a conditional sale instead as you’ll have longer. A mortgage can take two to six weeks to arrange so you’ll have time to complete. Don’t forget that the property being auctioned isn’t in a chain so that speeds up the process as you’re not waiting for another party to sell and move.

If the mortgage lender is unable to arrange finance, a bridging loan can help in the meantime. They usually take about 10 days to secure. Make sure you clear the loan quickly, however, as the interest rate is usually a lot higher than a bridging loan.

Can I get a mortgage for any property?

Getting a mortgage is possible for any property – but it most be habitable! Lenders demand that the property is in a liveable condition. That means you should be able to potentially live in it or let it on the day you buy. If the property’s bathroom, kitchen or heating system are not usable, you won’t secure a mortgage.

Properties with a short leasehold, any non-standard structures or Japanese Knotweed will also fail to secure a mortgage. Basically, if there are any causes for concern, then the mortgage lender may refuse a loan. That means if the roof is missing, it doesn’t matter how much potential it has, the lender will refuse a mortgage.

Do some homework before you consider bidding, as that dream home may become a nightmare!

If you’re considering buying a property at auction and want advice about a mortgage, contact our team today.