BTL mortgage on Auction Property?

MoneySpendingExpert888

Just wondering if anybody has ever bought a property at auction with a BTL mortgage? if so were there any other difficulties that they encountered other than the time constraints? Thanks

eddddy

The main difficulty is the risk of paying mortgage application fees, survey fees and legal fees in order to get your firm mortgage offer - and then being outbid at the auction.

I guess that might cost you £2k+ for each property you are outbid on. (Although, if a BTL mortgage provider lets you re-apply for different property, without charging a full application fee - that may help reduce costs.)

Some people contemplate bidding on properties without a firm mortgage offer in place - but that could cost you tens of thousands, if the property proves to be unmortgageable (which most auction properties are).

MoneySpendingExpert888

Hi Edddy, thanks for your reply.

Yeah that the issue that i am having at the moment, i was prepared to pay cash for a property which went to auction previously but I got outbid.

Now i have seen another property which is up for auction but at a higher price, meaning that i can't pay cash outright and would need some sort of financing.

I have heard of things like bridging loans but not sure if they are worthwhile?

stator

Bridging loans are a good idea if you have a 100% secure source of funds elsewhere that you just can't get acccess to in time to complete the deal.
Are you selling another house to buy this one?

MoneySpendingExpert888

Hi Stator,

I don't need to sell another house to buy this one, its merely just a case of the limited timeframe in being able to get the finance in place, i assume that from start to finish a BTL could take anywhere from 2-6 weeks and normally auction houses only give you about 20-28 days max to complete.

Would it be a case that i would just take out a bridging loan for the time that it takes me to get the mortgage in place, bearing in mind that even without the full mortgage process taking place first i might not even know if they will actually fully mortgage the property or not. But i guess if that was the case i still would have enough equity in my house to cover that remaining sum, it would just mean me having to remortgage i guess?

stator

No, you wouldn't be able to get a bridging loan because the mortgage is not a secure source of funds. If no bank will lend you the funds for the mortgage then you wouldn't be able to repay the loan. Usually bridgining loans work if you have some kind of endowment maturing soon.

eddddy

The really big question you should be asking yourself is "If it's mortgageable, why is it being sold at auction?"

Mortgageable properties achieve higher prices when sold through conventional EAs. So why is the vendor selling by auction?

But if you're 100% sure the property is mortgageable, you could talk to auction finance and bridging loan companies about a short-term deal. (But some of these companies are the moral equivalent of payday loan lenders - and it will be a business loan, so you won't even have the benefit of consumer protection laws.)

Re-mortgaging your current property before going to the auction would be the cheapest and safest option by far.

G_M

How does bridging loan help?

* You get loan in place
* you bid and win
* you pay, using combination of cash and bridging loan
* you apply for mortgage
* your mortgage is declined
* you are left with a (high interest) loan which has a definative end date
* you miss the end date and..... spiral downhill

If you don't have cash, get your confirmed mortgage in place before you bid.

MoneySpendingExpert888

The majority of properties that i have had my eye on at auction are repossessions or ones which are being sold off by trustees of estates, the reason the last one i had my eye on went up for sale is because the owner passed away and had no relatives and hence it went back to the government (so i'm told).

These types of properties arent up for auction because they are unmortgagable but more likely because of timescale, the banks probably dont mind selling a property a few thousand £ cheaper at auction compared to going through an estate agent because the quicker they get the money back the quicker they could probably make a few extra thousand £ investing it elsewhere.

taking on the thoughts of all your opinions it would seem the bridging option would be too risky for me to take. Remortgaging seems the best idea, either that or i save up some more cash and then buy outright when i can afford to, In my mind i just wanted to get on the ladder sooner than later as it always seems the better investment otherwise by the time i save up more the housing market as a whole has gone up the same amount and im back to square one lol

eddddy

MoneySpendingExpert888 wrote: »

The majority of properties that i have had my eye on at auction are repossessions or ones which are being sold off by trustees of estates, the reason the last one i had my eye on went up for sale is because the owner passed away and had no relatives and hence it went back to the government (so i'm told).

These types of properties arent up for auction because they are unmortgagable but more likely because of timescale, the banks probably dont mind selling a property a few thousand £ cheaper at auction compared to going through an estate agent because the quicker they get the money back the quicker they could probably make a few extra thousand £ investing it elsewhere.

No - this is wrong on many levels.

A bank has a legal duty to get the best price possible for a repossessed property. (As does an executor.)

And if a repossessed property is mortgageable, the bank will almost always get a better price selling it through a conventional EA. (If they didn't do that, they might have to explain to a court why not, and get sued by the mortgagor.)

And it takes a minimum of 7 to 8 weeks to sell by auction.

If somebody has a mortgageable, saleable property they want to sell quickly... if they put it on the market at a cheap price using an EA, they are likely to get offers within days, and be well on the way to completion within 8 weeks.

It's just a fallacy that auctions are wonderful places where deluded vendors sell their properties cheaply for no good reason. In general, people just aren't that stupid.