buying at auction

tostaky

Sorry if that has been asked before.
I have seen a house on auction. I understand the bidding process (+ i have bought lots of furniture in auction rooms).
What I am not sure of is the fact that if you are the winning bidder, the exchange is done automatically and you have 20 days to complete the transaction.
Obviously we do not have the cash to buy. Would a mortgage in approval be sufficient enough? Would the bank allow us to buy this without having done a survey? Or will the lender have enough time to do a survey? Our deposit is not very big either £200k and the guide price is at £800k. Other houses in the area are selling around £1.1
This one is made of 3 flats, 2 ASTs (for which a section 22 could be used, I suppose) and one Regulated 1977 tenancy (and we will have to sit this one out). How will it influence the lender? Good because we have an assured rental income coming in every month, or bad because with a rental property there is always a risk of default?
sorry many questions! Thanks a lot
Ps: the plan would be to convert the two ASTs flat into one big one and live there until we can convert the lot into a house.

justwhat

Many auction want a non returnable deposit on the hammer price. i have never had a mortgage on an auction property. You would be better seeing a mortgage advisor. Also don't think you would get a residential mortgage on it due to the tenancies.
There should be a legal pack for the property have you looked at it? 

tostaky

Thank you - the documents are not yet available.
How much of a deposit to they want? 
The non-refundable bidder security amount is £5k. I think the deposit is 10% of the winning bid and to be paid within 24hrs of the end of the auction. So say £900k that's £90k deposit, that's fine for us. (and £1k seller fee)
It would need to be a BTL mortgage initially. Then I don't see why we could not split the property into two, one rental, one residential?

tostaky

Also when I buy furniture in auction rooms, sometimes I place a bid under the guide price and I still win the auction. Is that something that could be possible for a property? or is the reserve price always higher than the guide price? It says it is "within the range of the guide price" but no more than 10% above it. 
Should I interpret it that the "range" is £720k to £880k ? and the reserve price is somewhere in that range? So it could be that reserve price is £750k - right?

Doozergirl

tostaky said:

Thank you - the documents are not yet available.
How much of a deposit to they want? 
The non-refundable bidder security amount is £5k. I think the deposit is 10% of the winning bid and to be paid within 24hrs of the end of the auction. So say £900k that's £90k deposit, that's fine for us. (and £1k seller fee)
It would need to be a BTL mortgage initially. Then I don't see why we could not split the property into two, one rental, one residential?

£5k non-refundable bidder fee?  This sounds like modern method of auction, not a traditional one.  Beware of them, the contracts are incredibly onerous on the buyer but not on the vendor.  

Going back to your original questions, You have to have the property surveyed by your mortgage co before the auction if you intend to buy with a mortgage otherwise you stand to lost all the money you invest if it's subsequently turned down as suitable security.  You basically have to get all of the conveyancing homework required to get the mortgage before the auction.   If you don't 'win' at auction, you lose the investment in valuations, surveys and conveyancing.   Better than losing £90k odd plus any difference in selling price if you can't raise a mortgage.  

Tbh, I think even if it were a straightforward residential purchase you'd be taking a big risk, the fact that it's all non-standard makes good reason why it's going to auction.   This is specialist territory.  I doubt if you can even raise mortgage on a regulated tenancy property - the lender wouldn't be able to repossess...

knightstyle

Walk, no RUN away, this does not sound like a proper auction!  As DG said it is the modern method which is just a way of fleecing money from buyers by the selling agents.
If you really want the property get in touch with the sellers and offer to buy it using traditional methods.
Just think, modern method requires a 5% fee paid to agent, normal house selling the agent gets about 1%.
There are many horror stories about people paying and not getting the property.

tostaky

Thanks @Doozergirl - It is from a reputable estate agent so I am not so worried.
Yes I think the fact we don't have the cash makes it difficult.... it is a shame because with the overall size of the house, a simple renovation would put it around the £1.5 mark in the area... The loft and side and rear extensions have been done and the property is very well maintained... 
I am going to go back to look at upper-doers around the £1.1 mark 

Scotbot

A traditional auction the deposit is psid within 24 hours and you have four weeks to complete or you lose the deposit and any fees. You cannot pull out because of survey or legal issues. This is not enough time to arrange a mortgage and complete conveyancing to the satisfaction of a lender. Buyers at traditional auctions are cash buyers

With the modern method of auction you pay tbe deposit within 24 hours but then have 8 weeks to complete which may be enough time to sort out a mortgage. Not guaranteed though. However there is a buyer fee of at least 4% which on £900k m is 36k as well as other fees.  You cannot pull out because of survey issues, legal or finance problems. You lose the deposit and fees.

Reserve is generally  10% above guide price so if the guide is 800 reserve will be around 880.

user1977

tostaky said:

Thanks @Doozergirl - It is from a reputable estate agent so I am not so worried.

The perceived reputation of the EA doesn't make much difference - unlike a normal auction, the modern method of auction is effectively binding on the buyer but not the vendor, because you'd lose your deposit if you fail to exchange quickly enough, whereas the vendor has no particular obligation on them or a deposit to lose. If you pull out, the EA pockets the "deposit" and they start again with the next mug. At least in a traditional auction there's a full binding contract as soon as the hammer falls. 

GDB2222

You should only bid on this once you have had all the legal and survey work done, plus a firm mortgage offer. That’s really just a polite way of saying that it’s a pipe dream and you should find something else. 

Regulated tenancy properties always used to sell at a 50% discount, so this may not even be that much of a bargain. It’s going to be extremely hard to get a mortgage, and even if you get one at all you may be shocked at the interest rate. 

You need a BTL mortgage initially, but then you are hoping to evict the tenants and redevelop. Then move in yourself. So, you need a development loan, followed by a residential mortgage on that part. 

GDB2222

Oh, and it’s a real learning curve these days becoming a BTL landlord. What will you do when you serve your S21 notice and the tenants don’t leave? It’s entirely possible that their tenancy has not been set up correctly and they are unevictable.