Can You Mortgage an Auction Property? (Fast Finance)
Property auctions are becoming more popular in the UK as people look to buy or sell homes. Most buyers use a mortgage because rising house prices make it difficult to get on the property ladder. It is a natural question to ask: Can you mortgage an auctioned property?
Yes, It Is Possible
Yes, it is possible to obtain a mortgage for a property purchased at auction. However, there are more risks, stricter criteria and tighter deadlines compared with buying via an estate agent.
Auctions are time-sensitive and legally binding, so buyers need to plan their finances well in advance. Auction properties are often sold below market value and can be a great option for homebuyers as well as investors.
We will explore below the important caveats and lender requirements as well as the types of auction sales, financing options, and frequently asked questions that you should understand before bidding.
What Makes an Auction Property Non-Mortgageable?
Not all auction properties can be mortgaged, even though they range from fully renovated homes to ready-to-move-in houses. Mortgage lenders have strict criteria in place to minimise their risk. If a property does not meet these standards, they may refuse to offer a mortgage.
In general, a property must be immediately liveable. Lenders will not lend if the property does not have a working kitchen or bathroom. Lenders are also unlikely to loan money if a property has serious defects or poses environmental risks.
Common Factors That Prevent a Property From Being Mortgaged
- Building defects or structural issues
- Dry rot or wet rot of the structure
- Japanese Knotweed is an invasive plant species
- Property near landfills, mining sites or flood zones
- Short-term leasehold properties, typically under 70 years
- Buildings or properties in partial disrepair
- Constructions that are not standard, such as concrete or timber frames
Investors may find that properties with tenants in place are not mortgageable depending on the lender's policy and the tenancy agreement.
How to Buy a House at Auction with a Mortgage
The strict deadlines for completing a purchase at an auction differ from traditional purchases. Understanding the difference between unconditional and conditional auction sales is crucial.
Unconditional Auction Sales
You can also auction off items at a fixed price.
- The deposit of 10% is payable immediately upon the fall of the hammer
- The sale becomes legally binding
- Usually, completion is required within 28-30 days
If you fail to complete the transaction, your deposit may be forfeited, and there is a possibility of legal action.
Important Note
Due to the lengthy time it takes for mortgages, auctions that are unconditional are better suited for cash buyers.
Conditional Auction Sales
The conditional auction provides more flexibility to mortgage buyers.
- Instead of paying a deposit, a reservation fee is charged
- An exclusive 60-day period of exclusivity is granted
- During this period, the seller is not able to accept any other offers
This time extension allows the buyer to complete their legal and mortgage checks, as well as conduct surveys. But, if you don't complete the transaction within this exclusivity period, there are still financial penalties.
What Happens If the Lender Cannot Meet the Deadline?
Buyers can use a bridge loan to solve a problem if a lender is unable to release funds on time. Bridging finance is available in 10 days or less, which makes it ideal for auction purchases.
Bridging Finance Considerations
Bridging loans, however, have higher rates of interest and should only ever be used for a short time. Most buyers remortgage to a standard loan once their property is fully mortgageable.
Bidding Risk and Lender Valuations
Mortgage lenders base their decision to lend on an official valuation and not the purchase price at auction. If the winning bid is higher than the lender's appraisal, the buyer will have to cover the difference.
Avoid Emotional Bidding
It is important to avoid emotional bidding and set a strict bid limit at auction.
What Are the Other Costs to Consider?
Buyers must also budget for:
Additional Costs
- Legal fees and solicitors
- Costs of valuation and survey
- Stamp Duty Land Tax
- Auction administration fees
- The legal pack lists costs or obligations
Professionals with experience in auction transactions will reduce the risks of missed liabilities or delays.
Can a Bank Cancel Their Mortgage Offer?
It is rare, but lenders may withdraw a loan offer during the final underwriting process if they identify new risks. It may happen if surveys uncover defects, valuation problems arise or credit checks are changed.
Reducing the Risk
This risk can be reduced by working with auction mortgage brokers who assess the property and the borrower early.
Can You Obtain a Mortgage for a Property That Is Being Renovated?
To qualify for a loan, a property that has undergone renovations must be habitable. A property that needs structural repairs or lacks basic amenities is usually not mortgageable.
Alternative Financing for Renovation Properties
In these cases, the buyer may use commercial financing or cash to finish renovations before remortgaging on a standard loan.
FAQs (Frequently Asked Questions)
First-time buyers are allowed to mortgage auction properties, but there is a greater risk because of the tight deadlines and lender requirements. It is highly recommended that you seek professional advice.
Not all banks will lend for auction purchases. Many buyers work with specialist lenders, who understand the auction timelines and risks.
Although it is not required by law, having a mortgage agreement in principle is highly recommendable. This helps to confirm affordability and accelerates the application process.
You may be forced to pay a reservation fee or lose your deposit if you are unable to secure a mortgage on time. As a last resort, bridging finance can be used.
The property must meet the criteria of the lender and be suitable for renting. Some lenders require landlord experience.
Not always. Competitive bidding can drive prices higher, even if some sellers sell below the market value. Lenders still will rely on the lender's valuation and not the auction price.
This is possible, but it's risky. To avoid missing deadlines, it is best to start the finance arrangements before bidding.
Unconditional sales require a 10% deposit immediately and completion within 28-30 days, making them better for cash buyers. Conditional sales charge a reservation fee and provide a 60-day exclusivity period, giving mortgage buyers time to complete checks and secure financing.
Standard mortgages typically take 4-8 weeks, which is often too long for unconditional auctions (28-30 days). This is why many buyers use bridging finance (available in 10 days or less) or opt for conditional auctions with a 60-day exclusivity period.
Conclusion
Can you buy an auction property with a mortgage? Yes, you can, but your success will depend on how well you understand the auction terms, lender requirements, valuation limits and timelines.
With the right preparation, expert advice and a realistic budget, purchasing an auction property using a mortgage is both possible and rewarding.
Need Fast Finance for an Auction Property?
Let Tapton Capital help you secure the right financing for your auction property purchase. Our specialist team understands auction timelines and can provide bridging finance, mortgage advice, and expert guidance to help you complete your purchase successfully.
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