You may be wondering ‘Can I buy a property at auction using a mortgage?’ The short answer is yes. Buying at an auction is different from the traditional route in that you usually have 28 days to complete once the hammer falls and you exchange contracts. This means you need a mortgage in principle in advance so that your finances are in place for quick completion. That’s where we come in.
As experts in auction finance, we understand how quickly the process moves when purchasing a property at auction. Our specialist brokers ensure you have your mortgage in principle before you attend the auction.
Your mortgage in principle
A mortgage in principle not only lets you know what amount the lender is prepared to loan you for a property but it also provides proof at the auction that you have finances in place for the property you’re bidding on.
Lenders require mortgage valuations to be carried out as part of the mortgage terms so, to ensure the lender won’t retract the offer at a later date and to save time before completion, it’s best to have a mortgage valuation carried out before the auction date. We will liaise with the lender to do this on your behalf.
Mortgages normally take 18 to 40 days to arrange so you might be concerned with the short timescale of 28 days to complete on the sale. We work closely with lenders who are used to handling mortgages for property auctions and will recommend a mortgage deal that best fits your requirements and circumstances.
You can also opt for a conditional auction sale rather than an unconditional one. An unconditional auction sale means you have to pay a 10% deposit as soon as you win the bid then pay the balance within 28 days. A conditional sale, on the other hand, provides a bit more flexibility. You have 28 days’ exclusivity to secure your mortgage finance. After that, the sale must complete within the next 28 days. This is ample time for your mortgage to be arranged.
Another option to consider if you’re worried about the short 28-day timescale is short-term finance while you wait for the lender to secure your mortgage. At Trinity Finance, we specialise in all types of auction finance so we can arrange this for you before you head to the auction.
A bridging loan, for example, is much quicker to put in place than a mortgage and allows you to finance the initial cost, bridging the gap until your mortgage is secured. Due to the convenience of a bridging loan, it has a higher interest rate so your auction finance broker will advise you on the optimum term to secure this for before your longer-term finance is ready.
Are there restrictions on properties that can be bought at auctions with a mortgage?
Lenders generally provide mortgage agreements for properties that are in good condition. That is, they are considered to be of an immediate liveable standard. Some of the properties commonly offered for sale at auctions include tenanted properties (which are suitable for buy-to-let mortgages), properties that have been repossessed and are being sold by a lender and properties that are being sold by relatives of the owner who has died. Lenders are generally happy to provide mortgages for these three types of property.
Some properties, however, are unmortgageable. They may have Japanese knotweed on the grounds, the property may have subsidence or the property might have a short leasehold, for example. We recommend that you have a survey carried out on the property before the auction date so that you are fully aware of any issues you may be faced with. Dilapidated properties are also not usually acceptable for mortgage purposes due to the costs involved to renovate them into a liveable condition.
If you’re specifically looking for a renovation project, we can arrange alternative auction finance for you, such as a commercial loan. After sufficient improvement to the property, you can then apply for a mortgage if you want to. A renovation project is where the bridging loan we mentioned earlier is useful as you can complete sufficient work before switching to your prearranged mortgage.
We can help with all your auction finance needs
Get in touch with us as soon as possible so that we can find you the best mortgage deal for your auction purchase. The earlier you can provide our auction finance experts with your information and details of the property you’re interested in, the sooner we can ensure you have a mortgage in principle.
Generally, auction catalogues are released at least 4 weeks before the auction date. This is the best time to give us a call and get your mortgage plans in motion.