Mortgage on an auction property

[BilboBagginsoftheShire]

Anyone done it? We aren't sure whether this possible or not. If you did it, how long did it take to get approval?

I did back in 2013 but even the thought of it terrifies me now 😂

I got an agreement in principle and happily skipped off to the auction and made the winning bid, paid my 10% deposit and exchanged on the day (which was all the money I’d ever saved as I was a first time buyer). I then had 28 days to complete so put my mortgage application in through my broker the same day, heard nothing for 3 weeks kept chasing and chasing the broker every day then eventually rang the bank myself to find out they’d changed their lending criteria and had turned the mortgage down and not told the broker. I then had 7 days to find a new lender and complete, I did manage to get a new mortgage in 10 days so I was a few days late completing and had to pay a penalty and extra legal costs for going through the process of having the seller issue a notice to complete etc.

It is doable but it is risky, you risk losing your deposit if completion doesn’t happen within the legal timeframe and that can be outside of your control, you are also subject to the same valuation procedure as with any other mortgage only you have already exchanged so if a bank deems it worth less than you’ve agreed to pay then that’s your problem and you can’t renegotiate.

I had a 10% deposit which looking back through much wiser eyes feels like madness but it did pay off handsomely when I sold it a few weeks ago after 7 years of live in renovations.

My best advice would be to get a very very very good broker and make sure you have everything you possibly can lined up in advance and don’t bid higher than you have set out beforehand (that’s the one thing I can say I did correctly, I wouldn’t have gone even 1 bid more than I did).

So grateful you took the time to respond here.

Yes it's very scary. I have put in an application for the upper end of our mortgage but because hsbc wasted 10 days off time making me think I was going to get an agreement before the auction I have only started dealing with a mortgage broker this week, and it may well come through after the auction as apparently they don't like to do desktop valuations on auction properties.

It's a lovely property and in the ideal location for the kids to be able to walk to school once in secondary and we would be able to have an affordable monthly mortgage whilst being able to afford a few renovations ourselves.

I'd love to get an idea from the lender what they do and do not consider mortgageable as the place does have a kitchen and a bathroom but it does have some light coming thru the roof so clearly needs a new one before we move in (we are currently renting). Anyone know what they rule out apart from concrete properties and those without kitchens and bathrooms?

Hi OP

I buy a lot of properties at auction. I think if I were you I’d try and get to the nub as to why the house is at auction. Main reasons- uninhabitable? Recovering from a fire? (Hole in the roof could be that) finance repo (this’ll mean it’s likely to go over asking so factor this in) JPK (your valuation will be affected) or a legal complication that needs to be resolved. It might simply also be a probate sale or vendor fire sale where the family wishes to realise the money ASAP

Google the house and see if it’s been on previously with a local agent. Contact them. Or contact the best local agent in the area - They’ll tell you what the issue is (maybe indicate you want to flip it and need to engage a local agent and ask their advice for likely resale price )

I’d download the auction pack now and have a look yourself. If it is incomplete there’s usually something that’ll arrive at a later date which needs to be looked at...if you can’t spot anything out of the ordinary get a solicitor to review the pack. Better to spend a couple of hundred quid now than lose 10%.

If all looks ok, get a broker to work on your behalf to see if the lender can work to a 30 day completion. There are specialised companies who provide auction day finance (it is a higher rate product) so maybe consider them for the purchase and remortgage once renovated? (Caveat here, I do not finance anything I buy at auction so I have no experience of these firms aside from bypassing their stands at the entrance to the auction hall Pre-Covid)

Good luck with it all.

Amazing info, thanks so much for this.

Apparently it's up for auction as the previous purchase fell through and the vendor wants a quick sale. I'm assuming that they have inherited it. It looks like an old person lived there but not by my reckoning for at least a year. I should probably let probe some more there- thank you.

I spoke to the agent and the previous sale fell through as the homebuyers survey revealed the roof issue and the buyer didn't have the funds for expensive renovations. Also some woodworm up there and some evidence of bats.

We heard today that the mortgage company want to do a valuation survey as suspected but it's been booked in for after the auction date. So we run the risk of having to use one of those companies you mention if they look at it after the auction and decide not to give us the mortgage.

The agent gave me a copy of the old survey as it was given to them but the old buyer. I then spoke to the original surveyor with a view to buying that survey officially. it had expired but he was seeing a property nearby and was able to squeeze in a viewing so I will now have an official detailed survey on the place- unfortunately he isn't on the recommended list from the lender though so he can't do the valuation.

I'm loathed to just give up on the property as I can see myself driving past it for the next 10 years on the drive to school and hankering after it. My gut says take the risk but I'm just trying to work out what kind of a risk that really is. Our broker said he had only had one buyer have to use the auction day finance ever and that was on a property that didn't have a kitchen. I'd want to take a whole load of bleach and mould remover to it but that kitchen would definitely count as a working one.

The agent did suggest they had had a lot of viewings but I'm not sure how many are going to auction as they rang me today to find out what my plans were. I'm hoping that means they have very few planning to bid.

I'll chat more with our broker on Monday now that we know the valuation is going to be done after the auction date and see what he thinks about going forward from here

Is it a modern method of auction (ie a marketing stunt) or an actual auction. Usually with traditional auctions you have a very very small window to complete that mortgage companies can’t work to as it’s not enough time to do anything.

@BilboBagginsoftheShire

What is your position? Are you ready to go? Are you prepared to bid above the guide price? Can you make an offer outside of the auction? If the vendor wants a quick sale but you are intending to offer over the guide, ask now. But remember the reserve and guide can change by way of an addendum up to just before the sale. The reserve must be +/- 10% of an open guide price. (Note also The vendor or vendor’s rep can bid against you to get to the reserve but no higher). Bidding outside of the auction generally involves agreeing to an offer at or over the reserve price.

Back to the house.... 1. What does your surveyor value the house at? 2. Get a roofer to quote for the roof 3. Understand what ‘evidence of bats’ means. Will their protected presence mean you cannot do what you want to do to the house? Who has reported seeing them?

Create a spreadsheet with renovation costs then in another column model your purchase cost with cost of finance. Then do your sums to create your maximum bid. I know you are probably emotionally invested in the house but the maths is the maths so don’t lose sight of this.

All the best, but I’d also say if you need to sell/aren’t already sold/finances don’t work it’s unlikely you can realistically proceed with this property given the vendors choice of method for sale , so you’ll maybe need to pick another school run route to avoid annoying yourself for the next decade .

So appreciate all the advice- thank you!

It is indeed a traditional auction so we would have to complete within 28 days. Previously it was being sold normally but as that didn't work out the vendor wants a quick sale.

I'll be having a conversation with the surveyor next week and that will give me a chance to work out the current value and his ball park recommendations for the renovations. Great idea about the spreadsheet, thank you.

We won't need to sell to put down a deposit luckily as we have some inheritance money. We also own a flat which we used to live in but is being rented out, (we currently live in rented accommodation in a different, much cheaper area). We have started up the process of getting that remortgaged to releases some equity which would be able to be used for the renovations. That one we already started with the broker so will hopefully be quicker but we won't need to rely on it to complete on this. We just need to get the mortgage on this one within the 28 days of sale.

I agree I have become rather emotionally invested in this house. I just know we would never be able to afford a house in the area without doing it this way. You're right about having to choose another route to school if it doesn't work out!

Don't get emotionally attached.

The bats could be a real issue with timing of works. Get good advice about this.

Well I’m rooting for you now

100% get bat advice. Definitely get a roofer to look. And find out cost of the woodworm treatment (although every survey I’ve ever had states there’s evidence of it on every house ). Don’t get the surveyor to do your costs, do them yourself as they are likely to be real world valuations. You need him to tell you 1. The real condition of the house and 2. what the bank’s valuer is going to say about the house a. Right now and b. When it is done up (if you need to remortgage). Your main hurdle is that is it habitable enough for a normal mortgage at the moment. Do not skip getting a solicitor or conveyancer to read the legal pack.

Obviously you understand these are sunk costs. You might spend a couple of grand on fees for a house someone else could outbid you on

Ask away if you have any other q’s.