how to buy a house at auction with a mortgage

If you don’t have the cash to invest in property then you don’t need to fret, this article covers how to buy a house at auction with a mortgage.

1. Avoid unconditional sales where possible

If a mortgageable property comes up at auction, it could be either on an unconditional or conditional sale basis. The difference between the two are important to understand.

An unconditional sale is legally binding and has a short completion date. Once the hammer falls, you will normally have 15 days or so to complete. If you fail to do so, you will lose your deposit and the house could be re-listed at your expense.

A conditional sale is non-binding and you will normally have around 40 days to complete.

Either way, you will need to have a mortgage offer in place before you arrive at auction.

2. Secure an ‘Agreement in Principle’

If you don’t have an existing relationship with a mortgage provider you trust to provide a quick turnaround, it is best to consult a financial advisor or a fellow property developer (another reason to join the Fielding Financial family).

While you are unlikely to get a firm offer before auction, you can try for an Agreement in Principle (AIP). As with any mortgage application, to get an Agreement in Principle you will need to provide your mortgage provider with proof of earnings.

An Agreement in Principle from your mortgage provider is sufficient proof of affordability for an auction house, but be aware that the lender can withdraw that offer at any time.

In order to feel more secure, we advise getting a property valuation and organising a survey before the day of the auction.

3. Get a property valuation

Our next tip on how to buy a house at auction with a mortgage is to arrange a valuation as soon as possible. Your Agreement in Principle is based on the amount you want to borrow. If the property turns out to be worth a lot more than you expected, you might need to rethink your strategy and revise your AIP.

4. Organise a survey

There are two key reasons to arrange a survey ahead of the auction. First, you will discover whether you should buy the property at all. Auction properties have occasionally been condemned after purchase, leaving their new owners with nothing.

A survey will also provide you with details of any work you will need to carry out before you can let the property. This will help you to plan your bidding strategy.

5. Look through the legal pack (with a solicitor)

Every auction property includes a legal pack which will include any special conditions of sale, local searches, leases, fixtures and fittings, management information and additional property information. Consider hiring a solicitor to go through the legal pack and highlight anything which could impact your costings or decision to buy.

6. Stick to your auction budget

Our final tip on how to buy a house at auction with a mortgage is to stick to your maximum bid price. This is a valuable tip for any auction, but if you are relying on a third party to finance the deal, they won’t necessarily agree to lending you extra if you get carried away.

What can you do if completion is delayed?

If your mortgage provider is unable to complete by the required date, you may be able to access specialist auction finance. This is a form of bridging loan which carries a high interest rate.

We hope we have answered your questions on how to buy a house at auction with a mortgage. We also recommend you read our previous article for general advice on buying property at auctions.

Learn how to buy a house at auction with a mortgage and much more with Fielding Financial

If you have been bitten by the property investment bug, come to one of our free property seminars and have your questions answered by our property specialists. You will also have the opportunity to network with like-minded people.

Visit our seminar page to find out when we are next in your area.

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