Buying a house at auction isn’t just for cash buyers. But if you need a mortgage on an auction property, there are some extra steps you’ll need to take and risks to beware of. We explain the step-by-step process of getting mortgage on an auction property.
Getting a mortgage on an auction property: A summary
Getting a mortgage on an auction property is possible but you’ll need to act quickly.
You’ll only have 28 days to get the money to complete your purchase if you’re buying a house at a traditional auction. You’ll have more time if you’re buying via the ‘modern method of auction’.
The property will need to be ‘mortgageable’. For example, you won’t be able to get a mortgage on an auction property with no kitchen or bathroom.
If there’s a delay getting your mortgage, you can get short-term financing called a bridging loan. You can also use bridging loans to buy unmortgageble properties.
Can you get a mortgage on an auction property?
Yes, you can get a mortgage on an auction property. But there are extra steps you’ll need to take and factors to beware of.
First of all, if you’re using a traditional auction, you’ll need to obtain your mortgage offer quickly to help you make a timely offer for an auction property. This is because you’ll need to exchange contracts on the day of the auction and complete (and therefore need to have the money to buy the house) 28 days later.
Some lenders may struggle with this timescale so make sure you use a fee-free mortgage broker who knows which lenders can move quickly.
You also need to make sure the property you want to bid on is mortgageable i.e. that it has a kitchen, bathroom, running water, is secure, weatherproof, a heating system and structurally sound. If it doesn’t, you can buy the house using specialist lending in the form of a bridging loan.
If there is a delay in getting your mortgage on an auction property you can take out a bridging loan to ‘bridge the gap’ in funding. A bridging loan can also help you but a house at auction that isn’t quite habitable so deemed un-mortgageable. In this instance, once you’ve improved the property so that it is ‘mortgageable’, you can then take out a standard residential mortgage on it. Read on for more on how bridging loans work.
Speed: The process is fast. So you could be moving in or letting the property out within a few weeks.
You could get a bargain: You may be able to buy your ideal home for much less than if you buy on the open market
You’ll know exactly how much others are bidding, unlike when you’re buying via an estate agent.
Cons of buying at auction
You’ll need to move fast or risk losing your deposit. When buying a house at auction you must exchange contracts on the day and pay the deposit. You must complete 28 days later.
Valuation discrepancies: When you apply for a mortgage, the lender will get a Mortgage valuation carried out to ensure it’s worth the amount you’ve agreed to pay for it. But ifthe surveyor determines the property is worth less than the sale price you’ve agreed (known as a down valuation) the lender may reduce the amount of money they are willing to lend you or even decide not to lend at all.
Condition of the property: You can’t get a mortgage on an auction property if the house is considered ‘unmortgageable’ you won’t be able to get a mortgage on it until you improve it.
The sale is final: When buying a house at auction, you’re committed to the purchase if you make a winning bid.
You could waste money on getting a survey if your bid isn’t successful
Step-by-step guide: How to get a mortgage on an auction property quickly
Here’s the step-by-step process of how to get a mortgage on an auction property.
Step 1 Find out how much you can borrow (1 hour+)
Start by establishing how much you can borrow on a mortgage. Speak to fee-free mortgage brokers L&C. They can give you no-obligation mortgage advice and set out your options today, for free.
Step 2 Apply for your mortgage in principle (A few minutes)
A mortgage in principle, also known as a decision in principle, is a document from a lender stating how much it would lend you ‘in principle’ based on details including your income.
You can get a Mortgage in Principle in just a few minutes with this Mortgage Finder powered by the mortgage experts at L&C. This allows you to check your eligibility against a wide range of lenders’ criteria to see which deals you qualify for, how much you can borrow and what it will cost. You can then click ‘submit’ to receive an online Decision in Principle certificate, which will typically last up to 90 days.
Step 3 View the property (1-2 weeks)
Study the auction house’s catalogue and make a shortlist of properties you’re interested in buying. Then contact the auctioneers and arrange an appointment to view the properties. If the property needs work, take a builder or architect with you to give you an idea of how much it may cost to bring it up to scratch.
Also, research how much the property is worth. Don’t just rely on the guide price. Ask local estate agents and neighbours for their opinions and compare it with other homes on sale locally so you have a realistic price in mind for when you go to auction.
Step 4 Decide on getting a survey (1 day)
If you get a survey before making a bid on a property, you’ll risk losing the hundreds of pounds you spent on the survey if you’re outbid. But if you buy a house without doing a survey first that ends up having major problems you may have spent hundreds of thousands of pounds on a property you wished you’d never bought. Read more information on House survey types and costs.
Case study: Not having a survey can be an expensive mistake. For example, one buyer bought a home at auction in Scotland, only to have it condemned by the local council soon after the sale. Not only did he lose the property but he also had to pay for the demolition.
Now you know how much you can afford to borrow on a mortgage on an auction property, make sure you have a clear idea before the auction of how much your maximum bid will be. When calculating this figure, take into account any money you’ll need to spend on the property.
Step 7 Auction bid accepted? Apply for your mortgage ASAP. (1 hour +)
If you make the winning bid, congratulations! Go back to your mortgage broker now and make your full mortgage application without delay.
Step 8 Mortgage valuation and mortgage offer (2-4 weeks)
Once you’ve made your application for a mortgage on an auction property, you’ll need to wait for your lender to make you a formal mortgage offer. This can take 2-4 weeks but can vary by lender, the house you’re buying, the findings of the mortgage valuation survey and your personal and financial circumstances. See our guide How long does it take to get a mortgage?
Step 9 Race to completion (By 28 days)
The clock is ticking and you’ll only have 28 days to complete. Your conveyancer should be working hard to get you to the finish line so you can complete your purchase by the deadline. Read our guide on How to speed up conveyancing.
KEY INFORMATION
Mortgage delays?
Getting a mortgage on an auction property in place by the 28 day completion deadline can be tricky because lenders may need more time:
If it’s unlikely your mortgage on an auction property will be through in time, one option is taking out a bridging loanto ‘bridge’ this gap in your auction financing. Bridging loans are very fast to arrange compared to traditional mortgages. By taking one out you’ll have the cash you need to buy the auction property until your mortgage completes. But there are risks involved.
Auction properties used to only attract investors and those who had enough money to buy the property outright without the need of a mortgage. But first time buyers are increasingly seeing auction properties as a more affordable way of getting on the property ladder.
But do your research carefully so you know what you’re getting into. With a normal house purchase you can pull out at any stage before exchange of contracts. But if you pull out of an auction purchase after you’ve agreed to buy it you’ll have to forfeit your deposit and could face other costs too.
Can I buy an auction property to renovate and finance it with a mortgage?
You won’t be able to get a mortgage on an auction property if it needs extensive renovation. The mortgage lender will require it to be ‘mortgageable’, for example it will need to have running water and a kitchen and bathroom.
But there are other types of auction financing. One common type of auction financing are bridging loans. You can arrange bridging loans quickly in order to buy the property and auction and to finance renovations. Then once it’s habitable and mortgageable, you can then remortgage onto a traditional residential mortgage.
Bridging loan calculator
Use this free bridging loan calculator to get a detailed estimate of interest, charges and other costs of your bridging finance.
Here are the pros and cons of different types of auction financing
Auction finance type
Pros
Cons
Best for
Mortgage on auction property
Lower mortgage rates. Can fix for longer term
Takes time to process, property must be ‘mortgageable’
Properties in good condition
Bridging loans
Quick to secure, allows buying unmortgageable properties
Higher risk as high interest rates, short-term
Delays in getting a mortgage, properties needing renovation
Cash Purchase
No risk of a mortgage being delayed or being rejected, fast transaction
Requires large funds
Investors, cash buyers
Types of auction sale
This guide is focused mainly on getting a mortgage on an auction property bought in a traditional auction. But there are two types of auctions when you’re buying a house and they work in different ways:
Unconditional auction sale – Traditional auctions
This is the traditional auction process. Once the hammer falls you’ll need to exchange contracts and usually pay a 10% deposit. You’ll then usually need to pay the rest a month later. Read more in our guide Buying a house at auction: What you need to know.
Conditional auction sale – The Modern Method of Auction
When buying a house via the Modern Method of Auction, the winning bidder pays a reservation fee at the end of the auction which gives them an exclusive period in which to buy the house but it’s not legally binding.
You’ll have 28 days to exchange contracts and a further 28 days to complete.
Modern Method of Auction properties are advertised online, often for around 30 days. Buyers bid online at any time within this period, just like eBay, with the highest bid at the end of the auction winning.
It may be easier to get a mortgage when buying a house via this type of auction as you’ll have longer to arrange it. But it’s important to know the potential downsides. Read our guide Modern Method of Auction: the pitfalls for buyers
Buying a house at auction: What do I pay and when?
When you’re buying a house via a traditional auction, you’ll exchange contracts on the day and pay a 10% deposit (plus any other fees listed in the property details). You’ll pay the remaining 90% 28 days later when you complete.
Do I need to have a survey done?
You don’t need to have a survey done when you’re buying a house but it can be a wise investment. When buying at auction you may be reluctant to spend the money on a survey in case you’re outbid. But this could be an expensive mistake.
What makes a property unmortgageable?
There are many factors that can make a house unmortgageable (which means a lender won’t lend a mortgage on it) such as if there’s no kitchen or bathroom. If you’re buying a house at auction that’s unmortgageable you can take out a bridging loan to cover the cost of the property and renovation work. Then once it’s mortgageable, move to a standard residential mortgage.
Do you need to be a cash buyer to buy a house at auction?
No, you don’t need to be a cash buyer to buy a house at auction. Getting a mortgage on an auction property is possible providing you move fast and the property is mortgageable. The other two main type of auction financing are bridging loans.
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