Mortgages for houses bought via Auction

dantheman8t5

Hi,
Is it possible to get a mortgage if you buy a house from an auction?
I’m a first time buyer and noticed a house local to me which is due to go up for auction in March, starting at 50k. This was due to the house being repossessed. Only problem at the moment is not being able to do a viewing.
Thanks

davidmcn

It's possible, yes, but the timescales are tight (especially for you as FTB applications will tend to take longer). Also bear in mind that properties tend to be in auctions because there's something objectively "wrong" with them (repossessions are mostly sold in the conventional way), and that might mean they're not easily mortgageable. Point us towards the property listing and we might be able to offer further advice. Auctions can be expensive / risky for those who don't know what they're doing - you need to do all of your due diligence in advance, which means wasted costs if you're not the successful bidder. 

AdrianC

dantheman8t5 said:

Is it possible to get a mortgage if you buy a house from an auction?
I’m a first time buyer and noticed a house local to me which is due to go up for auction in March, starting at 50k. This was due to the house being repossessed. Only problem at the moment is not being able to do a viewing.

Assuming this is a proper auction, not a "modern method", yes, it's possible - but you need to have everything lined up before you bid. Legals, survey, finances. EVERYTHING... Because the moment that hammer hits, contracts are exchanged. You are legally bound to buy at the hammer price, within 28 days. No ifs, no buts, no "ooh, sorry..." - and if you can't, it gets expensive.

But how do you get the property valued for the mortgage, and a proper mortgage offer, before you know what the price is...?

Also - £50k guide price does not mean it'll go for £50k. And I bet the lender who repossessed it were trying to market it before the auction - how long, for how much? Why did nobody bite...?

GDB2222

This is not for you.  The main issue is that the guide prices are often nowhere near the final sale prices. So, the property you are interested in may sell for £150k. Would you still be as interested?

Also, you have to have done your survey, and all the legal stuff, and have a firm mortgage offer in place before the day of the auction. That’s going to cost you around £1-2k in fees, and then you can simply find yourself outbid on the day.  

If you win the auction, you’ll need 10% cash to transfer that day, and will have to pay the other 90% 28 days later. That’s why you can’t turn up for the auction, bid, win the lot, and only then start looking for a mortgage. 

Most auction buyers have cash to spend. Often raised against other properties, but they are not having to scramble around for the money after they win the lot.

Doozergirl

A property near us went up for auction at £50k and sold for £188k with a ton of work to be done on it.

If £50k isn't a realistic price for the area, it won't sell for that.   Make sure you've done your research on house prices before committing sums of money to legal work and survey fees to satisfy a mortgage lender that it's good security.  

Lenders are still obliged to get the best price for a property.  If a repossession goes for less than the rest of the street, it's usually reflective of the condition.  People aren't always good to properties they're forced to leave.  😳

I thought viewings were still allowed? 

GDB2222

One other point is that property in poor condition often goes for more than it’s really worth, as buyers underestimate the cost of the work. Or they are prepared to pay a premium to be able to put their own stamp on the property, AKA living in a building site.

trex227

My MIL was interested in a house on her street last month. The auction house wouldn’t allow any viewings at all, it was their blanket policy. It was also up for £50k but went for £187k. Auction fees and sellers fees that the buyer had to pay totalled almost £10k.

At a minimum you could tell from the photos it needed new kitchen & bathroom, complete redecoration throughout, new carpet/flooring throughout and the garden clearing. It also looked like it needed some tiles replacing on the roof. Most likely needed new heating, probably some electrical work and possibly some level of replastering. Houses on the street go for £230k max when ready to move in. So someone paid almost £197k for a house that needed a lot of work.

Maybe that’s just in this area though- some auction houses publish their sale results so see if you can find any for this auction house and then compare prices achieved to what similar houses are worth.

AdrianC

GDB2222 said:

One other point is that property in poor condition often goes for more than it’s really worth, as buyers underestimate the cost of the work. Or they are prepared to pay a premium to be able to put their own stamp on the property, AKA living in a building site.

It's true.

We looked at a place a few years ago - small end-of-terrace in a handy but not great location on the edge of a nice small town, up for auction for what looked to be a very low guide. It ended up selling for double the guide, probably somewhere around 1/2 to 2/3 of what you'd expect to be a fair price for it in good nick on the open market.

Unfortunately...
Inside, it was untouched for probably half a century. Horrible lean-vaguely-towards on the back with the only bathroom in it.

Oh, and hard-hats required for the viewing, because one corner was barely attached due to subsidence from a long-leaking drain.

No, we did not bid.

It ended up being demolished and rebuilt completely. Gawd knows what it cost relative to the finished value, even before the hassle factor - I'm sure they could have bought a much bigger place for the money...

davidmcn

Also purchasers are often in the building trade to some extent (or can at least get mates' rates) rather than punters paying normal consumer rates for any work being done.

NameUnavailable

I do think buying at auction is something for cash buyers - there are huge risks relying on a mortgage, if only having to stump up thousands in advance for something you may very well be outbid on.

Despite the advice on homes under the hammer I think you really need to be prepared to take a chance and (having at least examined the legal pack and viewed the property inside and out) just bid on the day being prepared to deal with a few issues afterwards. .

To pay for surveys etc. on numerous properties until you 'win' the auction would wipe most occupier/buyers out very quickly!

youth_leader

My auction buyer had his mortgage in place, as I'd previously accepted his offer through the estate agent, he'd also had a full structural survey done.