LISA and Property Auction

Markdavid1962

My daughter and I have searched the forums and can not find an answer to the questions below

My daughter is a first time buyer and is looking at her options for buying her first property.

1)Can you purchase a house at a Property Auction and use the LISA as the deposit
2)The Auction house requires a 10% deposit, we believe this maybe different to the 10% deposit required for a mortgage.
3)Gaining pre-approval for the mortgage (amount) and buying a property at auction, will we encounter any loops to jump through with the banks.

Any guidance would be welcome

Thanks

AdrianC

Markdavid1962 wrote: »

2)The Auction house requires a 10% deposit, we believe this maybe different to the 10% deposit required for a mortgage.

Yes, absolutely.

The word "deposit" is confusingly used in two different ways.
It's used for the security deposit payable on exchange of contracts (which happens at hammer fall in an auction) - that's usually 10%.
It's used for the equity that the buyer puts in to the purchase, rather than borrows. So a 10% deposit is the same as a 90% LtV mortgage.

eddddy

Markdavid1962 wrote: »

3)Gaining pre-approval for the mortgage (amount) and buying a property at auction, will we encounter any loops to jump through with the banks.

Assuming you mean a conventional auction (as opposed to the 'modern method of auction')...

• Most properties in an auction will be unmortgagable

• Even if a property is mortgageable, you have to get the mortgage arranged and complete the purchase within 28 days from the auction. That's very difficult.

• If you don't complete within 28 days (e.g. because you can't get a mortgage approved), you will be in breach of contract. You could end up with no house, and a bill for damages much higher than your 10% deposit.

• The only safe way to do this, is to get a firm mortgage offer for a specific property before bidding for it at auction - but you'll typically have to pay application fees, valuation fees etc. Then, if you are outbid at auction, you lose all those fees.

(Perhaps the best answer is to say that conventional auctions are only really suitable for cash buyers. They're too difficult / risky if you need a mortgage.)

davidmcn

eddddy wrote: »

Most properties in an auction will be unmortgagable

I think this is an overstatement - the vast majority of residential properties I see listed in auctions are mortgageable, and appear to being sold that way to get them shifted, because they're in areas with a slow market or the seller is just in a hurry. But even if mortgageable, the practical issues with getting a mortgage offer in time make it tricky.

Also you need to do all of your legal due diligence and surveys before bidding, so potentially expensive if you're making unsuccessful bids.