Can you get a mortgage on an auction property?

13 February 2023

Can you get a mortgage on an auction property?
If you have searched for a house for sale online, chances are you will have seen property descriptions that mention the ‘modern method of auctions’. If you are interested in purchasing a property this way, you are probably wondering whether you can get a mortgage on an auction property.

What are auction properties?

If you have ever watched daytime TV, chances are you will have seen property auctions. Modern method of auction refers to a property auction where a local estate agent has been instructed to drum up interest and conduct viewings for the property. Prospective buyers are then told to make an offer by placing a bid for the property online. The seller will set a reserve price and an end date for the auction. Buyers will then compete to have the highest bid at the end of the auction, to then purchase the property at that price.

Types of auction properties with regards to mortgages

Conditional Auction Sale

A conditional auction sale will give you a longer timescale to complete on the property compared to a typical unconditional auction sale. With a conditional auction sale, you will typically be given 40 business days to exchange contracts and complete the sale. However, it is important to check the Special Conditions of Sale as these could specify a specific time frame for that property. This longer period of time will give you more time to secure your mortgage and complete all associated activities such as having a survey, dealing with solicitors and sorting out the paperwork. Should you fail to complete within this period, you might lose your deposit and be liable for extra costs. 

Unconditional Auction Sale

If you are the highest bidder on an unconditional auction sale, you will be required to pay a 10% deposit as soon as the auction ends, and you will be expected to pay the full amount within 15 working days of the auction, unless specifically stated otherwise. This shortened time frame makes it a riskier option for homebuyers who will be dependent upon securing a mortgage to finance the property purchase. 

Mortgages on auction properties

You can generally get a mortgage for an auction property however it is important to understand that there are certain criteria that will impact on the eligibility. Not every auction property will be eligible for a mortgage.

Criteria for auction properties to be eligible for a mortgage

Every lender will have their own criteria, however this is a rough guide as to the standard expectations and criteria. It is important to check with lenders before committing to an auction property, as you could be liable for a large bill or non-refundable deposit for the property even if you are unable to secure a suitable mortgage.

The main criteria lenders will use to decide whether to offer a mortgage for an auction property revolves around the condition of the property. Most mortgage lenders will only consider offering a mortgage on properties that are currently in a liveable condition. This is to say, the property does not require renovations or repair to be able to be lived in or rented out. If a property does not currently have a working bathroom, kitchen or heating, chances are it will not be eligible for a mortgage when bought from an auction. 

There are also other factors that a mortgage lender will consider before making a decision regarding whether to offer the mortgage. These factors include but are not limited to:

  • The remaining length of the leasehold, if applicable
  • Properties with non-standard structural features
  • Properties with defects or damage

If you are looking to purchase a property that is in need of repair, you should consider other financial options such as a commercial loan. 

How to prepare for a mortgage on an auction property

Having a mortgage in principle is highly recommended, especially for auction property mortgages. Whilst a mortgage in principle is non-binding and the lender is under no obligation to follow through with the mortgage offer, it is a strong indicator of what the mortgage lender might be willing to offer you. 

However, mortgages in principle are not linked to any specific property, so are not an indication of whether the lender will offer a mortgage for a specific auction property. Instead, where possible you should organise a mortgage valuation and a survey on the auction property before the auction takes place. The lender will only offer to lend you the amount they deem the property to be worth; not the auction sale price. Therefore, by organising a mortgage valuation and survey before the auction, you will have a clearer understanding of what the mortgage lender values the property at and whether they are likely to offer a mortgage. Whilst this might cost you an upfront amount, it could save you a significant sum in the longer run.

Mortgages for unconditional auction sales

For many mortgages, it can take between 2 to 6 weeks to be arranged. This length of time is unlikely to be compatible with unconditional auction sales that require the full value to be paid within 15 working days of the auction. Therefore, if you require a mortgage on an auction property, it is highly recommended to look for conditional auction sales. However, if you have your heart set on a property that is only available through an unconditional auction sale yet you still require a mortgage, there are still available financing options. One of these is a bridging loan, which can provide the funds much quicker than a mortgage. However, bridging loans typically have significantly higher interest rates compared to mortgages, so should only be seen as a short term and last resort option. About Mortgages are unable to offer advice on bridging loans, you would need to speak to a third party.

If you are looking for advice regarding a mortgage on an auction property, our team of mortgage experts are on hand to offer friendly, tailored advice. By understanding the range of options available to you, you will be better placed to choose the right mortgage for you. To book a free, no-obligation consultation, please use the link below.

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