How to buy a house at auction if you’re not a cash buyer

Property Auction

Auctions are a great way to buy a property quickly and at a bargain price. But does the fast auction process mean that you have to be a cash buyer to benefit? Not at all. There are ways to finance your purchase without needing cash funds. Here, we’ll explain two options available to you when you want to buy a house at auction. 

How to buy a house at auction if you’re not a cash buyer 

When the gavel falls and you’ve secured the winning bid, you’re legally bound to buy the property. You need to pay a 10% deposit immediately and have a short time frame within which to pay the balance. This is usually 28 days with an unconditional auction sale, which is the traditional auction method. If you attend a conditional auction sale, which is the modern auction method, you have a longer period of 56 days.  

If you’re a cash buyer, these time frames aren’t an issue. However, if you’re not lucky enough to be in that position, you need to arrange the funds to complete your purchase in time. You can either choose the traditional mortgage route or opt for specialist auction finance. 

A mortgage 

There’s nothing to stop you from using a mortgage to buy a house at auction. Just bear in mind that mortgages can take a long time to process. This means that you’d need to find a lender who understands auction timescales and can act quickly enough to meet them. 

Make sure that you arrange your mortgage in principle before attending the auction. That way, you know what the lender is prepared to offer you and you can budget accordingly. If possible, arrange for the mortgage valuation to be carried out before the auction. Not only does this save time before the completion date but it ensures that the lender won’t retract the offer at a later date if it doesn’t meet their requirements. 

Also, be sure to do your due diligence on the property before applying for a mortgage. Many properties are sold at auctions that have issues and lenders are either reluctant or unwilling to offer mortgage loans for these. For example, avoid properties with a non-standard construction, Japanese knotweed, subsidence or a short lease. The property also needs to be at a liveable standard so don’t bid on a dilapidated property.  

Auction finance  

Auction finance is a type of bridging finance and it can be arranged very quickly. The criteria are much more flexible than for a mortgage. The loan can be secured against the property you’re buying or another asset you own. Less restrictive than a mortgage, you can use auction finance to buy a property that wouldn’t be approved by a mortgage lender. For example, one that’s considered to be uninhabitable. 

As a short-term loan, the term is typically up to 24 months. Instead of making monthly repayments as you would with a mortgage, you repay the loan in full at the end of the term. This means that you need an exit strategy. For example, you may decide to use auction finance to buy the property and then switch to a mortgage for a long-term financial solution. Or you may want to buy the property to renovate and sell for profit, repaying the auction loan at the same time. Or you may have another property to sell as your exit strategy.  

When you arrange your auction finance in advance, you can be confident that the funds are in place to cover the deposit on the day and then pay the balance in the short time frame. 

Arrange the finance needed to buy a house at auction 

As you can see, you don’t need to be a cash buyer to buy a house at auction. Instead, you can arrange a mortgage or specialist auction finance. Our mortgage brokers are on hand to advise you on the differences between the two, helping you to make an informed decision.  

Whichever option you prefer, we are here to arrange it for you. If you opt for a mortgage, we deal with lenders who are used to handling applications quickly for auction purposes. As such, our brokers will find the best deals available from these lenders to meet your needs. If you prefer the security of knowing the funds are in place before you attend the auction, our auction finance specialists will arrange this fast and flexible lending solution for you. Just give us a call on 01322 907 000 when you’re ready to get started.