First time buyer - Is it safe to buy first property at auction?

EasyToAssemble01

I'm a first time buyer, and this year is when I should be able to scratch the rest of my deposit together, to start looking at properties. I'm considering auction listings, as it may be a way to make my money go further, but wondered if there may be pitfalls for a first time buyer doing it this way?  I have no idea what's involved in the auction process. Is it easier to be stung by hidden problems and issues with a house bought in auction? A friend mentioned that the allowed conveyancy / search period is a lot shorter for auction houses, which sounds stressful.

hazyjo

Not advisable, especially as it sounds like you're needing a mortgage.

- You'll be committed to buy when the hammer falls. You'll then only likely have under a month in which to complete. Usually 28 days.

- It would certainly be advisable to actually have the mortgage in place or you'd be left without a paddle if they decline. You'd still have no guarantee of winning the auction. It could (and often will) go for way over guide price.

- Most auction properties are there for a reason, usually because they're not mortgageable or have major problems. It would be down to you to establish any problems. May be non-standard construction, short lease, subsidence, etc.

Slithery

What would you do if you won the auction but then couldn't get a mortgage due to problems with the property? You would still be contracted to buy the place or lose your 10% deposit.

MalMonroe

EasyToAssemble01 said:

I'm a first time buyer, and this year is when I should be able to scratch the rest of my deposit together, to start looking at properties. I'm considering auction listings, as it may be a way to make my money go further, but wondered if there may be pitfalls for a first time buyer doing it this way?  I have no idea what's involved in the auction process. Is it easier to be stung by hidden problems and issues with a house bought in auction? A friend mentioned that the allowed conveyancy / search period is a lot shorter for auction houses, which sounds stressful.

Have you ever seen Homes Under the Hammer? If not, I'd suggest watching just one episode. Maybe two. (I find it quite addictive!) Obviously auctions won't be held in the same way until coronavirus is under control but it's the same principle.

When you buy a house via auction you really have to know what you're doing. And you have to obviously look at the property before you buy. (Some people on the programme don't and it costs them). 

I'd recommend not touching this idea with or without a barge pole unless you have done a lot of research and know what you're going to be doing. You may be able to save money by buying at auction but then again, you may lose. It's a gamble.

There's a lot of information on the internet, such as this : https://www.auctionhouse.co.uk/guide/first-time-buyer

EasyToAssemble01

hazyjo said:

Not advisable, especially as it sounds like you're needing a mortgage.

- You'll be committed to buy when the hammer falls. You'll then only likely have under a month in which to complete. Usually 28 days.

- It would certainly be advisable to actually have the mortgage in place or you'd be left without a paddle if they decline. You'd still have no guarantee of winning the auction. It could (and often will) go for way over guide price.

- Most auction properties are there for a reason, usually because they're not mortgageable or have major problems. It would be down to you to establish any problems. May be non-standard construction, short lease, subsidence, etc.

Yes, the mortgage will be in place before I make any offers, anywhere. I want the best possible chance of securing anything I'm interested in, so having the mortgage in place is important. I'm in no rush to buy, so delays aren't a problem.
It was more the risks regarding auction properties themselves, assuming any leases are long and the construction is standard.

Caz3121

EasyToAssemble01 said:

Yes, the mortgage will be in place before I make any offers, anywhere.

Do you mean that if you see a property you will interested in you will pay for a survey and arrange mortgage before the auction? Until the property is surveyed the bank won't know if they would lend on it, you may have an AIP which may state that based on your income they could lend you up to £x but mortgage offer will depend on property found. 

hazyjo

Exactly as Caz is saying: I hope you're not confusing an AIP with an actual mortgage offer. Sounds like you are.

tacpot12

Many properties are sold at auction because they have problems, either structurally or legally. You need eagle eyes and experience to spot these sorts of problems before you buy, so it is extremely risky to buy at auction as a first time buyer. As you have identified, timescales are compressed when buying at auctions - you don't get as long to look at houses or their legal packs, so you have to be available to do all the work quickly, and have a solicitor and surveyor who are available at short notice, which might cost more If you have a full-time  job, it can be stressful trying to get everything completed so you can even make a bid. 

Guide prices tend to be set low to attract more interest. Certainly at the low end of the market, the guide price might actually be half what the  property is worth to an auction purchaser, so expect to pay double the guide price plus the buyer's premium. 

That said, if you can find a property that is being sold at auction because it has  been repossessed, or is an estate sale where the executors just want to move a good property on as quickly as they can, it can be a way to save a good amount of money. And of course, you save the cost of interest if you don't have to borrow as much on your mortgage because the property was cheaper to start with. 

If you have someone in the family who has bought and sold a number of properties and had to deal with building and legal problems, if you can get them to help out, then it might be viable to be a first-time buyer at an auction. Without this experience, I think it would be too risky - it would be better to take your time and buy through an estate agent.  

Davesnave

MalMonroe said:

EasyToAssemble01 said:

I'm a first time buyer, and this year is when I should be able to scratch the rest of my deposit together, to start looking at properties. I'm considering auction listings, as it may be a way to make my money go further, but wondered if there may be pitfalls for a first time buyer doing it this way?  I have no idea what's involved in the auction process. Is it easier to be stung by hidden problems and issues with a house bought in auction? A friend mentioned that the allowed conveyancy / search period is a lot shorter for auction houses, which sounds stressful.

Have you ever seen Homes Under the Hammer? If not, I'd suggest watching just one episode. Maybe two. (I find it quite addictive!) Obviously auctions won't be held in the same way until coronavirus is under control but it's the same principle.

When you buy a house via auction you really have to know what you're doing. And you have to obviously look at the property before you buy. (Some people on the programme don't and it costs them).

By all means watch it, but remember it's a reality TV show, mostly designed to be feel good and not a true reflection of the situation you'd be in without a TV company holding your hand. If you've ever witnessed situations where people have bought way out of their depth, you'll know they can become more Jeremy Kyle than HUTH!

A  lot of auction properties aren't mortgageable, or if they are, there's some other problem. How far do your skills go? You could waste a considerable amount of time and energy chasing  properties which turn out to be unsuitable. I've been there to a small extent. Discovered lots of useful stuff, but not actually anything I'd buy after finding that stuff out.... and the legal packs aren't cheap either

trex227

You might also have difficulty viewing. My mother in law was looking to buy a property last week at auction, the auction house wouldn’t let anyone view due to COVID. I don’t know if it was just that property or all that were being auctioned, but the potential for bad surprises is much higher if you’re not allowed to view 

Davesnave

tacpot12 said:

Guide prices tend to be set low to attract more interest. Certainly at the low end of the market, the guide price might actually be half what the  property is worth to an auction purchaser, so expect to pay double the guide price plus the buyer's premium.

That's a good point. I wouldn't say as much as double the guide price if the price setting has been done according to usual practice and the house isn't special, but the auctioneer's guide price is certainly low enough to attract the uninitiated.

I'd also add to avoid anything being sold by the 'modern method of auction.' Like many modern developments, the only advantages there are for the agent, not you!