Property Auction / Mortgage Dilemma !!

shrewd_saver

Partner & I have seen a property advertised for auction at the end of the month. Guide price is £450k - £500k (expect higher).

Current situation is we each have our own properties:

property 1. Value £200k-£225k (mortgage £140k)
property 2. Value £200k-£225k (mortgage £100k)

Salaries are £40k + £30k plus £3k maintenance. with incidentals we net £4k per month.

Nat West have offered us £407k mortgage based on earnings and are looking into whether we take £407k as new mortgage whilst still selling other properties.

We have totally fallen for the auction property and are prepared to pay up to £600k but equity is tied up in existing properties. There's loads of interest in the property, we saw at leas 10 other families at the first viewing! We tried to put an offer in today pre auction but were advised the property MUST be sent to auction.

Questions:
1. How can we bridge the £193k whilst waiting for properties to sell? Nat West have said they can't because we'll already owe the group £647k. Confident we can cover a realistically charged bridge for up to 6 months from savings.
2. How do we pay 10% deposit at auction day? We have shares but can't sell til after new tax yr due to capital gains but 10% will be due end March and could be up to £60k.
3. is £600k realistic for auction property with a guide of 450-500? bearing in mind the guide prices are always kept low to attract interest??
4. What would the reason be that the property MUST go to auction? We think it's been left to an estate so perhaps that's the reason?
5. any other advice??

DavidHM

1. How can we bridge the £193k whilst waiting for properties to sell? Nat West have said they can't because we'll already owe the group £647k. Confident we can cover a realistically charged bridge for up to 6 months from savings.

- Pass. I guess the short answer would be "see a broker."

2. How do we pay 10% deposit at auction day? We have shares but can't sell til after new tax yr due to capital gains but 10% will be due end March and could be up to £60k.

- What are your savings like? I'm guessing that your shares would not be business assets per se (although they could be AIM-listed shares) and so we're only talking about an extra year's taper relief. Have you done the calculations and seen how much difference it would make, bearing in mind how much you want this property?

3. is £600k realistic for auction property with a guide of 450-500? bearing in mind the guide prices are always kept low to attract interest??

- Pass... there could be a bidding war but it's a lot for an auction property. What do you think the property would go for on the open market?

4. What would the reason be that the property MUST go to auction? We think it's been left to an estate so perhaps that's the reason?

It's possible but usually an executor will be as keen as anyone to secure the best price and that would normally mean putting it on the open market via an agent unless it's in some way "special." Of course if it had been left to a charity or just someone without the time to secure an estate agent and viewings, or who wanted a quick sale, they might auction it.

It could also be that there is a sitting tenant (but you'd probably know about that) or that the property is in some way unsuitable for a mortgage (e.g., its structural condition or worse, the kind of construction).

Finally there is the possibility that the owner either needs to raise cash double quick or has been made bankrupt (or the mortgage company has foreclsoed) and it's actually the trustee in bankruptcy or mortgagee selling the property.

5. any other advice??

No, just wanted to address questions 2 and 4 really.

shrewd_saver

DavidHM wrote:

- Pass. I guess the short answer would be "see a broker."

How do we find a good one? Do you have any website links?

DavidHM wrote:

- What are your savings like? I'm guessing that your shares would not be business assets per se (although they could be AIM-listed shares) and so we're only talking about an extra year's taper relief. Have you done the calculations and seen how much difference it would make, bearing in mind how much you want this property?

Cash savings of approx £12k Unfortunately not business assets, although part will possibly be eligible for non business asset taper relief. Sadly not enough shares to cover tax AND deposit. Could maybe raise £25k-£30k through shares.

DavidHM wrote:

- Pass... there could be a bidding war but it's a lot for an auction property. What do you think the property would go for on the open market?

Hard to say what it would fetch on OM.

DavidHM wrote:

It's possible but usually an executor will be as keen as anyone to secure the best price and that would normally mean putting it on the open market via an agent unless it's in some way "special." Of course if it had been left to a charity or just someone without the time to secure an estate agent and viewings, or who wanted a quick sale, they might auction it.

Property is very much a one-off as it has small amount of land, no neighbours and is in catchment area for local great schools. Just down the road there are properties worth millions! This has last been occupied by somebody elderly who I suspect has passed away. Property is completely empty, but agency photos show curtains, plant pots in window etc so looks as though recently emptied. Needs a lot of work but is habitable so lots of builders looking (although area is greenbelt so no chance of development) Have checked council website and everything in the immediate area has been refused.

DavidHM wrote:

It could also be that there is a sitting tenant (but you'd probably know about that) or that the property is in some way unsuitable for a mortgage (e.g., its structural condition or worse, the kind of construction).

DavidHM wrote:

Property is vacant, completely empty. Needs work but not in poor condition. Is all cosmetic.

Finally there is the possibility that the owner either needs to raise cash double quick or has been made bankrupt (or the mortgage company has foreclsoed) and it's actually the trustee in bankruptcy or mortgagee selling the property.

5. any other advice??

MortgageMamma

I cant help with the deposit situation, and this might not be right for your circumstances, but have you considered a let to buy mortgage?

shrewd_saver

MortgageMamma wrote:

I cant help with the deposit situation, and this might not be right for your circumstances, but have you considered a let to buy mortgage?

No, how does that work? Would we get it through in time for end March?

herbiesjp

Just beat me to it MM

If you were going to move out of your respective properties, a lender would ignore those mortgages in the background as long as the rental income covers the mortgage payment (each lender requires different coverage)

Therefore a new lender would be able to agree the mortgage based entirely on you own income and not make any deductions for the mortgage in the background

This whole scenario would really need a feee free mortgage adviser, in order to discuss the figures in great detail, and also the timescales in relation to the auction and the deposit needed.

In reality it would be wise to get a survey done asap, and the mortgage process started asap in order for you to have that all agreed by the time of the auction. That would mean that if you were successful, you would then have your solicitors ready to do the legal work for you within the stipulated completion deadline

HTH

MortgageMamma

You must bear in mind this method will involve fee's. You will need to gain consent to let from your two mortgage lenders, and then get a couple of rental income calculations done - you may have to switch those mortgages to intersst only to make it fit - or you may be O on repayment.

Then what happens is your new lender, and it must be a lender willing to accept LTB on auction properties, takes your income, minus your liabilities, plus the surplus rental income (if any) on the previous two properties and calculates the maximum you can borrow

You will then need to obtain an agreement in principle, and then make the full application and have the lender survery the property and get to offer preferably before the auction

You will obviously need a 10% deposit, your stamp duty and legal costs and one way to do this is to remortgage one of your properties to pay for this in the short term

Remember once you win that auction and pay that 10% deposit you WILL NOT get it back if you cannot complete, and sometimes there are penalties for not completing within 30 days

this means you will have to start your legal work and searches as soon as possible to keep you on time - which means expense upfront for the valuation ad legal work before you have even won the auction - CONSIDER IF THIS IS A RISK YOU ARE WILLING TO TAKE

Once again I will reiterate what Herbie has said and advise you to see a broker. don't just go for anyone though, you need someone reputable with experience of this situation, unfortunately I am too busy to help, but II will help as much as I can on here

shrewd_saver

Wow thanks, loads to go on there.

Current mortgages are NWB & RBS. Can we not buy to let the two existing properties with the current lenders up to say 95% of their value and take the new £407k mortgage for the auction property?

This would give us about £570, plus shares and cash would get us to £600k, hopefully enough to win the auction??

I'd rather not try to move it all to NWB if possible cos RBS mtge has fixed rate and would involve penalties. It's going to mean some considerable outlay in the short term but would be worth it if we pull it off... and we'll have to or I think we'll be bankrupt!!!

Oh I'm going grey already !!!!

shrewd_saver

p.s. any broker recommendations gratefully received...

MortgageMamma

I'm not allowed to post recommendations on the Public Forum - MSE see it as a clash of interests, an adviser recommending another adviser - but I assure you I have no financial gain!

shrewd_saver

MortgageMamma wrote:

I'm not allowed to post recommendations on the Public Forum - MSE see it as a clash of interests, an adviser recommending another adviser - but I assure you I have no financial gain!

Can you tell me how i can find a good broker experienced in this sort of thing? Any websites I can search?