Written by Domenico Davis
Updated over a week ago
If you’re looking to get a property from auction, you might be wondering how you can get a mortgage on it.
In short, you can get a mortgage on an auction property. You’ll require a mortgage in principle beforehand from your lender that allows you to spend a certain amount on an auction property. Depending on whether the auction property is sold as conditional or unconditional will determine how long you have to secure your mortgage.
We’ll go into more of the details below.
Before you go to auction and start bidding, you need to know how much you’re able to spend. Get in touch with a broker and make sure you have a mortgage in principle, so you know have a budget during the bidding process.
This is also essential as auction properties have a set completion date, so you’ll need to get the money over the seller as soon as you’re able.
A mortgage in principle is a confirmation from a lender that says they’ll lend a certain amount of money to you.
It isn’t a certainty they will lend that money, but it hurries the process if you need to close on a property quickly.
Understand that a lender will only offer what the auction property is valued at. This means if the bidding prices goes over the estimated value, you’ll have to pay the difference. This can also jeopardise your mortgage, so tread carefully when bidding.
The price of property is not the only thing you need to worry about. You should also have a budget for things like legal fees, contracts, and surveys. These will usually be laid out for you before you start bidding in each property’s legal pack.
As well as additional costs, you will need to pay for a portion of the property on the day. This will act as a deposit.
The amount you’ll usually have to put down is 10% of the price you agreed to pay for it. So, make sure you have this available so you can close on it immediately.
When the hammer falls, you’re locked into that sale. Failure to have the deposit available could result in some harsh penalties.
Whether or not you’ll be able to use a mortgage to purchase an auction property will be determined on whether the property is conditional or unconditional.
A conditional auction property is the best option you have if you plan on financing with a mortgage. Conditional properties allow for 40 days to complete the sale, allowing you plenty of time to secure a mortgage from your lender. If the timescale is smaller, it will be stated in the legal pack for the property.
This period also allows buyers to do their due diligence with surveying, solicitors, etc. without anyone else coming in a snatching up the property. If you fail to pay within the deadline, you’ll lose your reservation fee.
An unconditional auction property is not a great option for mortgage finance. Once the gavel falls, you’re now in a binding contract with the seller with the competition date set 15 days from that point. There is little time to get a mortgage together and failure to complete the deal can result in loss of deposit or you’ll have to pay for the resale at the next auction.
In either case, opting for a conditional property is the best way to if you’re using a mortgage. Mortgages are typically completed in 2-6 weeks, so 40 days is plenty of time to get your ducks in a row.
Do bear in mind your mortgage lenders won’t lend you the money on every property available at the auction. You have to be careful what you bid for otherwise they may reject your application.
The biggest factor that will hurt your chances at securing a mortgage is refurb properties. If the property you’re after at auction needs a lot of work, the lender may be wary about lending to you.
The last thing you want is to be bidding on a property that is unmortgagable. Avoid properties that have no kitchen or no boiler. Additionally, look for things others might overlook, such as Japanese knotweed.
To save yourself the trouble of bidding on an unmortgagable property, it’s important to get a survey done as soon as you’re able.
With conditional properties, you have the first 20 days of the competition period to check the property and do you due diligence. Make sure you’re investing in something you can get finance for.
A surveyor will be able to break down any issues the property might and will be able to provide information that your lender will need to make an informed decision.
Although you can get an auction property with a mortgage, it is sometimes advised to use a different finance option to secure your property.
Mortgages are slow and you need to act fast if you’re to make payment within the completion period. Especially if you’ve purchased an unconditional property.
Other financial options include bridging finance, which is a common financial vehicle to use when purchasing auction properties.
What bridging finance is goes beyond the scope of this article. Discover more on our knowledge centre.
You can absolutely purchase an auction property with a mortgage. The process is fairly simple as well just as long you can complete the purchase within a tight timeframe.
Of course, other funding options are available, and some are more appropriate than mortgages. However, it all comes down to personal preference.
For more information on mortgages and auction funding, see our knowledge centre.