The idea of snapping up a property at an auction can be appealing to some homebuyers. But it’s vital to be prepared, and be aware of the potential pitfalls.
Traditionally, properties sold at auction were those that were difficult to sell privately – repossessions, homes that had been overpriced, or properties in a less desirable location.
These days, auction properties can be highly sought after, including those that offer redevelopment potential. People tend to buy at auction looking for bang for their buck, a rare
to market property and a fast sale.
What some buyers don’t realise is just how quick a fast sale really is. When the gavel comes down in a traditional auction, the buyer is committing to paying a ten per cent, non-refundable deposit and completing within 28 days. That includes mortgage agreed, survey sorted, conveyancing done, contacts exchanged, everything.
In recent years, the modern method of auction has become more popular. Here buyers bid online against each other for a property until the auction completion date. Although deposits or reservation fees are similarly non-refundable, they can be lower and buyers can sometimes have longer to complete the purchase – often as long as 56 days.
While the need to complete within a limited timeframe puts everyone under added pressure, in general lenders do not have an issue with providing mortgages for auction properties. However, from a lender’s and a broker’s perspective there are three key steps prospective buyers can take to alleviate the time pressure – and the stress – for everyone.
Survey your options: Sometimes the auction pack for a property will include a survey. If it doesn’t, then think about commissioning one before the auction or getting together with other interested parties to do so. Many of the properties that come to auction haven’t been on the market for years and so may not have been subject to a survey for a very long time. There can be surprises, from structural problems to issues with titles to restrictive covenants. A few hundred pounds spent upfront can save a whole lot of pain further along the buying processes.
It’s worth mentioning here that a builder is clearly not a surveyor. Just because a builder has taken a look around a potential redevelopment property and thinks it looks a sound investment, is no guarantee that the lender will agree.
Get a mortgage ready. Whether you’re going down the traditional or the modern auction route, you will need to be mortgage ready so you can move quickly. That doesn’t mean having an agreement in principle. It means having a mortgage agreement in place and ready to go. Look for a lender that can work within your time parameters. You will need to have all your documentation, such as payslips and bank statements ready and credit searches completed. It’s also worth double checking that you are on the electoral roll and you must be ready to provide an audit trail for your deposit money.
Take advice:If you are buying an auction property you may find that your options are slightly more limited in terms of lenders and that the interest rate might be a percentage higher.
Finally, do not let your heart rule your head and bid over your maximum borrowing capacity. This can be an extremely costly mistake as there is no guarantee your mortgage provider will agree to this increase.
*Andrew Milnes is Business principal at Mortgage Advice Bureau, Bingley. Contact: 01274 568832