Bridging loan from parents for auction property

rhysneedshelp

Hello, and thanks for any help!

Basically its as explained in the title. I've been looking at a property which has now been put up for auction. In an auction scenario if your the winning bidder when the hammer falls you pay a non-refundable 10% down payment then within 28 days you have to come up with the remainder of the balance, or else you forfeit the 10%.

I'm a first time buyer and would need a small mortgage. In this time frame getting a mortgage complete could be an issue. So in that situation, where i have applied for a mortgage but the process looks like its going to over run the 28 day deadline, would i be able to accept a bridging loan from my parents without it adversely affecting the mortgage process? and without causing any other issues?

I hope that wasn't a too long winded explanation!

And as i said at the top, any help would be greatly appreciated.

GMS

With a good broker and a very good solicitor you can meet the timescales.

Make sure you scrutinise the legal pack and have a survey done prior to auction, whether a knowledgeable friend or official survey.

If you complete the purchase with parents money you would need to remortgage rather than have a purchase. Many lenders will not allow a remortgage within 6 months of owning the property.

Try to make plan a work first. Speak to a broker.

rhysneedshelp

Thank you for your quick response! I've been researching my head off (hence my delayed thanks) theres a lot to take in when your new to this game! I thought that would be the case re parents funding, its not the route i want to go down in any circumstance really, though it would be preferable to losing a deposit!

Things are getting on track though i think, i've been in contact with solicitors today and i've got a busy day of estate agents, surveyors and a financial advisor tomorrow so hopefully things will start falling into place.

Though out of interest would you (or anybody else reading this) recommend a particular mortgage lender/s that seem to process applications faster than others?

I know each case is different so nothing is guaranteed, but in general where there are no complicated situations, i.e. no depts, good credit history, a single applicant etc. Thanks for any further help!

Annisele

If it's an auction property then there's a good chance there is a complicated situation.

I think that placing a mortgage can be difficult for two reasons: there's an issue with the borrower, or there's an issue with the property.

If the borrower has no debts, a good credit history, a large deposit, plenty of income, plenty of time to retirement etc, then that all looks great. But if the property has no functioning kitchen or bathroom then that prime borrower will not get a standard mortgage from a high street bank.

Often (not always) properties are sold via auction because there's something wrong with them - they're falling down, there's a short lease, there's a dispute over title, a motorway is about to be built through the back garden, etc. Sometimes (again, not always) the thing that's wrong with it means that the property isn't suitable security for a mortgage, and you can't get a mortgage on it at all. So, if you know you're going to need a mortgage you likely need to pay for the survey/legals etc before you even bid.

(Another problem with recommending a particular lender is that we're not allowed to - advice isn't allowed on these boards. Information, opinion and comment, yes - advice no.)

rhysneedshelp

Thanks for your reply. i didn't realise you weren't aloud to recommend suppliers, thanks for the heads up!

I'm in the process of organising pre-auction surveys and the necessary legal checks, and my bidding will be conditional on these coming out positively. Admittedly this could be money lost but i feel the possible benefits out weigh the possible loss.

Also the reason for the property going to auction, from what i can gather, is solely for a guaranteed sale. Theres a bathroom, kitchen, central heating/hot water boiler, so it seems ok on the habitable front (unless there are other particulars I'm missing?). Its has been on the market for some time with price reductions periodically, which did worry me at first. But due to its location and certain features its not attractive to the normal clientele (young families or down sizers). For me though i loved the place as soon as i walked in, it does need some work but hopefully (after a positive survey) these will prove to only be surface issues.

Any other concerns or things to be wary of please let me know. They are honestly welcomed!!

Yorkie1

rhysneedshelp wrote: »

I'm in the process of organising pre-auction surveys and the necessary legal checks, and my bidding will be conditional on these coming out positively. Admittedly this could be money lost but i feel the possible benefits out weigh the possible loss.

The highlighted bit can be read in two ways. I'm simply highlighting that if you intend to bid at the auction, without the survey & mortgage etc stuff resolved, then you cannot bid conditionally. As soon as the hammer comes down, you're committed to the purchase irrespective of subsequent information coming to light.

I suspect that your meaning was that you won't bid unless the stuff is resolved before the auction - but better to check understanding than not!

amnblog

I am not being funny Rhys but have you been to an auction?

PasturesNew

rhysneedshelp wrote: »

....when the hammer falls you pay a non-refundable 10% down payment then within 28 days you have to come up with the remainder of the balance, or else you forfeit the 10%.

... and potentially more money.

e.g. if you get to the end of the time (which might even be 14 days, not 28) and can't fund it, then you can ask them for an extension. They might want another 10% on top.

e.g. if you can never raise the funds and have to withdraw, they'll then put it back on the market and it'll be sold again. You'll be responsible for any additional costs they've had to incur if it sells for less than you'd "bought" it for. e.g. it might sell at a lower price and there'd be auctioneers' fees too.... and more legal fees they had to pay out.

rhysneedshelp

Again, thank you all for the replies. Just an update first, iv talked to a financial advisor today and he has been in contact with the vendors estate agents to pursue a pre-auction sale, which hopefully will be accepted and then we can follow the more traditional sale route.

However, if this is not accepted the FA seemed to think that obtaining a mortgage offer within the 28 day period should not pose to much of an issue, as long as the property passes valuation surveys etc.. A mortgage in principle was carried out, with a lender known to act faster than average, with the results showing i would be eligible for 5 times my salary and way above what i would need to borrow. Though i realise this doesn't mean too much with out the property survey and legal documents being checked.

In relation to the points raised:

Yorkie1: Thanks for noting the clarification needed. And yes, i meant that i will not bid unless the proper legal checks are carried out, before auction, and that they are found to be proper and in order. And also that a pre-auction survey has been carried out that states that the property is mortgageable, and that the value is equal or greater to the my highest bid offer.

amnblog: I've been to a non-property auction before, i realise the stakes (and potential risks) are higher but i assume the basics are the same. If there were time i would attend a few property auctions, just as an observer to get the feel of the situation, but in the circumstances this is not possible. Is there any reason you ask? It's not necessarily the auction that fazes me just the possible risks arising from it.

PasturesNew: In the event of a mortgage not being available coming up to dead line day i'm in the position where i can borrow the funds from my family (and yes i realise how lucky i am!!). If for some reason this offer was also to be withdrawn then, to my understanding, i wouldn't get the 10% down payment back, i can be liable for the vendors legal fees, and for the difference in sale values, if the property sells at a future point for less than my final bid amount. Do you know of any other fees/charges that could arise from a forfeit bid?


Again thanks a lot for everyones input, i'm looking for any and all faults that could arise from my situation. Heres hoping the vendor will accept my pre-auction offer!