Auction mortgage deposit

schmikes

I'm interested in buying a property at auction. I'm not a cash buyer so will need a mortgage. I have a good deposit level for a 'normal' mortgage on the property (>20%). I've read all the advice around viewings, timescales and arranging valuation surveys. However, I'm confused about the auction and mortgage deposits, and whether the auctioneer deposit 'counts' towards the mortgage deposit total, even after discussing with a broker.

The auctioneers require a 10% deposit, which is fine. Let's say I win the lot and pay the 10% and will be using a previosuly arranged mortgage to pay for the property. How much deposit would the mortgage company normally require? I can think of three possibilities for the calculation, eg for £100k property assuming a 20% mortgage deposit and an 80% mortgage?

1. Auction deposit: £10k, additional mortgage deposit £10k, mortgage £80k. (This assumes the auction deposit counts towards the mortgage deposit).
2. Auction deposit £10k, additional mortgage deposit £20k, mortgage £70k. (This assumes the auction deposit doesn't count at all towards the mortgage deposit but the lending ratio remains at the overall purchase price).
3. Auction deposit £10k, additional mortgage deposit £18k, mortgage £72k. (This assumes the 20% mortgage lending ratio is only on the £90k remaining value of the house after auction deposit).

Which of these is the correct (or at least the most common) way that a mortgage company operates in auction lending?

Thanks for any help,
Mikey

davidmcn

Answer 1 is correct. The lender doesn't care how much or when you paid your contractual deposit to the seller, only how much they're lending in relation to the total value of the property.

hazyjo

Stating the obvious, but a lot of people on here don't realise it, so maybe worth pointing out that a lot of properties put into auction are unmortgageable so tread carefully. (Sometimes when you lose the one you want and another looks like a bargain, it's tempting to go for that instead...)


Jx

eddddy

... remembering that 80% LTV mortgage means 80% of the purchase price or mortgage valuation - whichever is lower.

So if the mortgage valuer values the property at £90k, but you bid £100k - the most mortgage you would get is £72k.

schmikes wrote: »

I'm confused about the auction and mortgage deposits, and whether the auctioneer deposit 'counts' towards the mortgage deposit total, even after discussing with a broker.

If your broker is unfamiliar with the mechanics of auctions, it might be a good idea to find another who is familiar.

Most 'conventional' auctions only have 2 weeks between the catalogue being published and the sale date. You have to view the property, make a decision, instruct a solicitor and get a firm mortgage offer during that time.

If your broker isn't 100% up to speed with how auctions work, that's an even bigger challenge.

schmikes

Many thanks all for this help. I'm glad option 1 won - it requires the least cash :-)

I am having a second viewing early next week and if it still seems like a good option I will be getting a full structural survey and going to a *different* broker before the sale day.

Cheers,
Mikey

Cheeky_Monkey

If you do want to go for it, it would probably be a good idea to check with the Auction House first to make sure that they will allow access for a full structural survey bearing in mind that the property is probably empty

eddddy

schmikes wrote: »

...and going to a *different* broker before the sale day.

Sounds good. But what type of auction is this - when is the sale date? Typically, auction catalogues are only published 10 working days before a sale.

And here's some examples of how long it takes to get a mortgage offer:

Santander 9 working days: https://www.santanderforintermediaries.co.uk/submit-and-track-business/our-service-levels/

Virgin 13 working days: https://intermediaries.virginmoney.com/virgin/news/service-levels/

Natwest 13 working days:
http://intermediary.natwest.com/?extcam=furl-intermediarysolutions


That's why you need a specialist broker who knows which lenders work quickly and/or has ways of fast tracking applications. If you haven't got one lined up yet, it may be difficult.

eddddy

...and of course, ...

schmikes wrote: »

I will be getting a full structural survey

Full structural survey fee
Mortgage application fee
Mortgage valuation fee
Broker's fee
Solicitor's fee

... even if you get outbid on the day, you will still have to pay these. You could easily be a thousand or two down.

G_M

It may help to stop using the word 'deposit' in relation to the personal money you will be spending on the purchase.

The 'deposit' is the initil payment made to the seller and/or auction house, prior to Completion.

The balance is paid at Completion (ie total price - deposit paid).

This has nothing to do with the source of your funds which is a mortgage + your cash.

Decribing 'your cash' as a 'deposit' is confusing.