How to buy a house at auction without cash

Disclaimer: This article provides information on how to buy a house at auction without cash. It doesn’t make any recommendations on which, if any, of the methods are suitable for any particular reader.

Options are listed in alphabetical order.

Option 1. Auction finance

Auction finance does what it says on the tin, but it can be a very expensive way to raise the money for a property purchase. Arrangement fees and interest rates are usually very high, and the penalties for late payment and early withdrawal can be eye-watering.

On the plus side, auction finance providers specialise in raising funds quickly, so you can be confident you will meet the strict completion deadlines of a property auction.

Option 2. Bank loan

If you have a good credit score and sufficient collateral for security, then a standard bank loan may offer you attractive interest rates. This is a lower risk strategy than entering the unregulated loans market.

Option 3. Friends or family

Before delving into the loans market, consider whether there is a cash rich relative or trusted friend looking for an investment. They may be willing to lend you the money at a low interest rate (or even interest-free) in return for a share in any profits you make.

If you do lean on family or friends for a loan, be sure to draw up proper legal contracts.

Option 4. Joint venture/equity share

The joint venture (JV) route is often most suitable for those investors who have a valuable skill. This could be in construction or in property sourcing, for instance. The cash poor partner provides their skill as ‘sweat equity’ while the cash rich partner funds the purchase. Both parties benefit from the profits generated.

JVs are subject to Financial Conduct Authority rules, and the contract terms should be checked thoroughly by an independent solicitor.

Option 5. Mortgage

It is possible to arrange a standard mortgage on an auction property providing you can get an agreement in principle (AIP). However, this is a risky strategy for several reasons:

  • The mortgage lender may withdraw their initial offer following detailed financial checks on the buyer
  • The mortgage lender may withdraw their initial offer following the property survey. Auction properties are more likely than most to have hidden structural problems.
  • The mortgage lender may withdraw their initial offer following advice from the solicitor. A solicitor is legally obliged to inform the lender of any issues they discover when going through the legal pack.
  • The mortgage lender may take too long to provide the funds.

If you trust your lender to meet the completion deadline and have full confidence that you, the property and the transaction are free from complications, a traditional mortgage may be feasible for you.

Option 6. Seller finance

In rare cases, a seller may agree finance terms with the buyer directly. These deals are few and far between because most sellers use auctions to dispose of properties quickly. However, if a property is failing to attract much buyer interest, some sellers will consider alternative arrangements.

Need more advice on how to buy a house at auction without cash? Come to your free, local Fielding Financial seminar

For more detailed information on how to buy a house at auction without cash, we recommend attending a Fielding Financial seminar. These are free and we hold them regularly up and down the UK. Simply visit our dedicated seminars page, and book a place at the one that’s most convenient for you.

Our seminars are hosted by real property specialists, including some who have previously bought properties at auction.

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