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How to finance an auction purchase

19th April 2021

If you’ve ever been put off buying a property at auction because you assume it is cash buyers only, think again. Purchasers can successfully bid on a property without a wad of notes burning a hole in their pocket, as Open Online explains.

Can you buy an auction purchase with a mortgage?

Yes! You can buy an auction property using a mortgage but before you get carried away, there is some groundwork to do. Here are Open Online’s 7 watch points when buying at auction with a mortgage:-

1. Find out what lots are mortgage friendly

Establish with the auction house as to what lots are offered to those using a mortgage. Not every auction property for sale may be compatible with a home loan, so advance information is crucial to avoid disappointment. Ask us about our mortgage-friendly auction properties.

2. Choose between a conditional or unconditional sale

It is not unusual for unconditional sales to come with the caveat of completion within 20 working days - failure to provide the mortgage funds in line with this date could jeopardise your deposit and you could incur compensation costs if you can’t meet the deadline. If in any doubt, opt for a conditional sale as the completion timescale is generally longer than an unconditional auction sale – in the region of 40 days.

3. Get a mortgage agreement in principle before the auction

You’ll need to come to the auction with a mortgage agreement in principle so the auctioneer knows you’re in a valid position to proceed with a purchase. Either use a mortgage broker or High Street lender to obtain the decision in principle, ensuring they know your intention is to buy at auction.

Open Online has partnered with H D Consultants who are an FCA-authorised broker firm, and one of its specialities is organising mortgages for auction properties. They will work with your circumstances to help you make a successful mortgage application.

4. Prime the lender to release funds at speed

Be aware that your mortgage funds will need to be released in good time – completion on auction properties usually happens in a much faster timeframe than when using a traditional High Street agent. In fact, you may need to provide your mortgage funds in as little as three weeks after the auction date.

5. What it’s worth and what you’re paying need to match

You’ll need to be confident that the amount you pay for an auction property and its true value as recorded by a surveyor match. If not, your mortgage lender may refuse to release the funds – worth noting if you get carried away and pay over the estimated guide price, or if the property is in a state of disrepair. To ensure everything tallies, get a survey carried out on the property before the auction takes place.

6. Have a plan B…a bridging loan

It’s worth exploring bridging loans before you start bidding, just in case your mortgage funds are not secured or released in time. A bridging loan can cover the cost of a purchase and one can be arranged in a much quicker time frame than a mortgage but there will be a higher rate of interest attached. It’s wise to pay off any bridging loan as soon as your mortgage funds have cleared.

You can buy a property at auction with a bridging loan instead of a mortgage – suitable for circumstances where the property is un-mortgagable (very poor state of repair, uninhabitable or of a non-standard construction, for instance) or has a complex title. Do be aware of the interest rate charged before committing to any finance. H D Consultants can also help with bridging finance, supplying a number of products to choose from.

7. Paying your deposit

If you make the winning bid, you will need to pay a deposit equal to 10% of the property’s sold price on the auction day - this could be in the form of a cleared loan or money saved. The funds will usually need to be in a bank account and paid by a banker’s draft, although it is sometimes permissible to pay by cheque. Cash is not accepted due to anti-money laundering regulations.

If you are interested in buying a property at auction, contact us for our latest catalogue and event dates, or browse our properties for sale here.

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