facebook logogoogle logo
5.0 Rating | 136 - reviews
facebook logogoogle logo
5.0 Rating | 136 - reviews
facebook logogoogle logo
5.0 Rating | 136 - reviews

Buying a house at auction in the UK. What do you need to know?

auction in the UK

Need assistance? Leave your details, and we'll get back to you shortly. Request a callback now.

Table of contents
(click to expand)

Do you find property prices in the UK very high, but still want your own four walls? If so, you’ve probably thought about cheaper forms of purchase, and you may also have heard about houses that are put up for auction. In today’s article, we’ll take a look at just this method of buying property. If you’re looking to purchase a home through an auction, be sure to stay with us until the end!

Buying a house at auction in the UK Extend Finance

Why are auctioned houses cheaper?

First of all, let us consider why it is worth considering the auction of a house. From the seller’s side, this form of sale is justified in two situations:

  • The property is problematic and no one will buy it under normal circumstances
  • It is necessary to sell the house quickly, for example because of debts or a fortuitous situation

In both cases, time is important, so the existing owner will be quicker to agree to certain compromises in order to get the money they need. On the other hand, auctions are attended by people who are prepared to suffer certain inconveniences – it often happens that the building is not habitable, has an unsettled legal situation or simply requires very expensive renovation. Both parties to the transaction agree to certain concessions, and in return the whole procedure takes a short time and in the vast majority of cases is successful.

Houses that have been repossessed due to unpaid debts also go to auction. This is known as repossession, which occurs, for example, when a person fails to pay their mortgage instalments or evades taxes.

According to 2020 statistics, around 15,000 properties went to auction. This represents just over 2% of all homes sold in the UK. So it’s not a very common occurrence, but it’s certainly worth bearing in mind these types of transactions as they can really save you a lot of money. A large proportion of these properties are in need of renovation or have a problematic legal status, but we have not been able to access precise statistics on this.

Mortgage for an auctioned house

We have already mentioned that properties at auctions are very often ‘defective’ to some extent, and the duration of the auction is shorter than a standard purchase. For these reasons, obtaining a mortgage is done on a different basis, then the repayment terms are also slightly different – they are less favourable for the buyer. Usually, the financing of the purchase is short-term – you borrow the money for a few months, raise the standard of the property to the point where the bank will give you a normal mortgage and repay the existing facility. Such a short-term borrowing is called a bridging mortgage.

Bridging mortgage – key features

  • The mortgage period usually does not exceed 12 months.
  • Banks grant it for properties that cannot be covered by a normal mortgage, for example due to the lack of a bathroom or electricity in the building.
  • The time taken to grant a mortgage is considerably shorter than under standard conditions.
  • Conveyancing is more expensive than a normal mortgage.
  • The interest rates and commissions of a bridging mortgage are higher than for a mortgage on normal terms.
  • Banks provide such facilities for riskier ventures.
  • The LTV (loan to value) usually does not exceed 75%. This means that you have to prepare a higher deposit.
  • The interest rate depends on a number of factors, but can be as high as 1.5% per month!

When is it worth it?

The interest rates and high deposit that come with bridging mortgages can be very daunting, but this medal also has another side. Sometimes the asking price for a 3-bedroom house is £50, £60 or £80,000, a fraction of the standard value of such a building. Not all properties have legal or structural problems either! Perhaps the owners are getting divorced, have inherited the house or have fallen into debt and are simply keen to get their money back quickly.

If you have managed to accumulate some financial surplus and are thinking about buying a rental property, an auction could be very beneficial for you. You’ll finally have somewhere to live, and even after factoring in the cost of renovations, the whole investment may just turn out to be cheaper.

Buying a house at auction also makes sense if you are familiar with renovations or have trusted subcontractors to take care of all the necessary work. Remember that since the house has gone to auction, you are facing more than painting or replacing tiles. The most common problems are:

  • Landslides and other structural breaches of the house
  • Custom construction (BISF, Airey, shipping container houses)
  • Japanese knotweed
  • No fire protection solutions
  • No bathroom or kitchen
  • No access to electricity

You will get a bridging mortgage for such a property, but due to its high interest rate, the new buyer should bring the house into working order as soon as possible in order to be able to apply for a mortgage on normal terms.

When is an auction house not a worthwhile purchase?

Unfortunately, there are several situations in which it is not worthwhile to start bidding on a property. This is particularly the case if:

  • You don’t have a large amount of cash – you will need it for a deposit, a high mortgage contribution, renovations or to cover the high interest on a bridging mortgage
  • You don’t have your own property or you need to move quickly. If you want to buy a house to renovate, moving within a month or two won’t be comfortable because you have to reckon with possible delays in building work, missing bathrooms or kitchens etc.
  • The property you have chosen requires a lot of investment and you do not have a high income and are not familiar with construction. Unfortunately, a large proportion of auctioned properties require really major interventions. Removing knotweed from the walls, for example, can cost several thousand pounds or more, as its vines significantly weaken the structure of the load-bearing walls.
  • You want a clear cost estimate for the entire purchase. You may find that unforeseen complications arise in the course of the renovation, for example, you will find that the electrical system requires extensive changes to its design. We would describe auction houses as ‘higher risk properties’. The bank may also withdraw from the financing, in which case you will lose the down payment you made on the day of the auction.

Buying a house at auction – essential tips

Let’s now look at some of the details you need to pay attention to when you decide to bid on a house.

Before the auction

  1. Make a list of auction houses in your area and make a ranking of the properties you are interested in. You can decide on a particular house right away.
  2. Make an appointment to view the property and prepare yourself a list of questions to ask the seller. Pay attention not only to the house, but also to its surroundings. It is a good idea to take someone with you who is familiar with construction and renovation. This will help you decide on a specific offer more quickly.
  3. Carefully review all the details of the auction and the property, including its legal situation.
  4. Contact a broker, such as Extend Finance, to discuss the details of financing the purchase. Take the opportunity to spend as much as possible organising the renovation. Remember that time to buy is limited and bridging mortgage rates are high, so everything needs to go as quickly as possible.
  5. Determine the maximum amount you can pay for the property you are bidding on and check the conditions the auction house sets.
  6. If you cannot attend the auction, appoint a representative. This could be, for example, a solicitor or estate agent.

During the auction

  1. Be on time. Additional information may be announced just before the bidding starts.
  2. Remember that guide price is not the same as reserve price. Guide price is literally ‘projected price’, but it is not a binding value. Reserve price is the minimum price the seller will agree to.
  3. Stick to your budget and don’t get carried away by your emotions. Bargains happen less often than you think!

After the auction

  1. If your bid has won, you will be asked to sign a contract and pay a deposit (10%) immediately after the bidding.
  2. Within 2-6 weeks of winning, the rest of the price should be paid.
  3. If the bidding is not successful, the seller may try to sell the property privately. For this reason, it is advisable to be at the auction until the very end.

Source: propertymark

Where to look for auctions?

We have mentioned in many articles that the vast majority of house sales listings in the UK are on two portals: Rightmove and Zoopla. The same is true for auctions, but let’s not forget other sites such as Auctionhouse and SDL auctions. The more listings you see, the better – by searching you will gain knowledge about prices, typical problems and think more deeply about choosing your new home.

Insuring the property purchased at auction

If the property you buy is insured, the policy passes to you on the day you win the auction. However, it may be the case that the building is not protected in any way and it is worth taking care of this as soon as possible. You probably know that property insurance can cover the building itself as well as its contents. Of course, the premiums will vary considerably depending on the condition of the house, but we suggest that you take an interest in at least the basic insurance option, which will not cover the furniture, for example, but will protect you from the negative consequences of a flood or fire. The better the condition of the property you are buying, the easier it will be to insure it.

Of course, at Extend Finance we take care of such matters, so if you are planning to take out a policy for your new property, you are more than welcome to contact us 🙂

Summary

Property auctions are a very interesting, albeit risky, way to buy a home. You can both save a few tens of thousands of pounds and lose a lot more when defects that are difficult to detect at first glance come to light. However, if you want to give it a try and are aware of all the pros and cons, we encourage you to get in touch with our team. We’ll help you every step of the way, from choosing an estate agent, to selecting the right bank, to choosing a solicitor and moving to a standard mortgage once you’ve dealt with all the necessary repairs.

Interested in UK property but more appealing to you is the standard purchase route? We can help with that too! By the way, feel free to read some of our articles that you may also find interesting and useful:


Share

Table of contents
(click to expand)

Get In Touch

By submitting the form, you consent to the collection and processing of your personal data in accordance with our privacy policy.
5.0 Rating | 136 - reviews
facebook logogoogle logo

Our team is here to assist you. Contact us by completing the form below.

Think carefully about securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services and some forms of Buy to Let mortgages are not regulated by the Financial Conduct Authority.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts
secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services are not regulated by the Financial Conduct Authority.

Extend Finance nor The Right Mortgage Limited can’t provide advice regarding Personal Pensions, Pension planning or investment planning advice. You must seek independent financial advice from a suitably qualified professional financial adviser who may charge you for advice.

Wills, Will writing, Trusts and Trust planning are not regulated by the Financial Conduct Authority.

* We will receive a small fee from CheckMyFile for any referrals.

Get In Touch

By submitting the form, you consent to the collection and processing of your personal data in accordance with our privacy policy.
5.0 Rating | 136 - reviews
facebook logogoogle logo

Skontaktuj się

Wysyłając formularz wyrażasz zgodę na gromadzenie i przetwarzanie Twoich danych osobowych zgodnie z naszą polityką prywatności.
5.0 Rating | 136 - reviews
facebook logogoogle logo

Done!

One of our advisors will contact you ASAP!

Zrobione!

Jeden z naszych doradców wkrótce się z Tobą skontaktuje!