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Home » Mortgages » Mortgages for Auction Property

Mortgages for Auction Property

If you are an experienced landlord or a first time buyer, buying at auction can be daunting and exciting. Having a clear understanding of how you intend to finance the purchase is important. Here we explore the ways you can purchase a property at auction.

Is a Mortgage for Auction Property possible?

When buying a property at auction you normally have to exchange on the day of the auction by putting down a deposit of say 10% and then you have 28 days to complete the transaction. If you fail to complete in time you could incur further costs and lose your deposit, so having your finances in place is important and if they fail to materialise it could be very costly.

If you are looking to purchase a property and want a traditional mortgage with a high street lender, taking out a mortgage for an auction property is not possible as it simply won’t complete in time due to the lender and solicitor processing times.

If you are looking to take out a buy to let mortgage for auction property again you may struggle to complete in time due to the same reasons mentioned previously, however some bridging loan lenders have started to offer a hybrid buy to let mortgage which is designed like a buy to let mortgage, but it can be underwritten just like a bridging loan where speed is key.

What is a Hybrid buy to let mortgage for auction property?

This is a more recent product designed by bridging finance lenders to provide fast, bespoke buy to let mortgages to help clients purchase a property with complex circumstances, such as the need to complete quickly.

What is the criteria for a hybrid buy to let mortgage for an auction purchase?

The applicant must be aged 21+ and can purchase a property in either their personal name, Limited company name / SPV / LLP or in a Trust. The applicant can be Employed and/or Self Employed and can also be a first time landlord.

Regarding the type of property which is suitable for this type of mortgage would include:

  • Residential Properties
  • New build Properties
  • HMO / Student Let Properties
  • Flats including above commercial property such as a retail shop
  • Multi Unit Freehold Blocks (several flats all held within 1 freehold – no leaseholds in place)
  • Holiday and short term lets

You can have these mortgages over terms of up to 15 years and typically they have redemption fees if you redeem the product within the first 2 years.

What costs are associated with a hybrid buy to let mortgage?

When buying a house at auction with a mortgage the fees involved could be:

  • Valuation Fees – This can vary depending upon the property valuation, whether an online valuation would be possible and what types of works (if any are required).
  • Legal Fees – You will need a conveyancer to represent you in the transaction plus in some cases you may have to pay for the lenders legal costs.
  • Broker Fees – The broker you choose may charge a broker fee and this could be paid on application, on offer or on completion. Your broker should advise you upfront what fees are being charged and when payable.
  • Lender Arrangement Fees – This is typically 1.5% – 2% of the mortgage amount.
  • Interest Rate – For borrowing the money you will be charged an interest rate.
  • The terms issued by the lender should clearly detail all the associated fees/costs and when payable.

Bridging Finance or a Hybrid Buy to let mortgage – which is best?

This all depends upon the asset and what your plans are. If for example the property you want to buy at auction is uninhabitable and requires major works, therefore the hybrid buy to let mortgage product is not suitable and you will have to take out a bridging loan which is more designed for this situation.

Another example would be if you wanted to purchase a house and then split it into flats, again this would not be suitable for a buy to let mortgage and you would need a bridging loan to finance this.

It is a good idea to run your enquiry through with an experienced broker to discuss your financing options.

What are the advantages of buying a property at auction?

There are some good reasons to buy a property at auction such as:

  • Buy a property at a discounted price – There are many reasons why a property maybe discounted such as the seller needs a quick sale &/or the property is in a poor condition, so buying at auction you could purchase a property under the market value.
  • Speed – Once you have won the bid, with most auction houses you exchange on the day and then have to complete within 28 days.

What are the disadvantages of buying at auction?

There are some disadvantages you should consider when buying at auction such as:

  • Timeframe – If you do not complete the purchase within the timescales set you may incur additional fees and possibly lose your deposit you exchanged with. Getting your finances in place before the auction is really important.
  • Overpaying – Before you look to purchase a property at auction you need to do your research on the property, maybe even get a valuation done and have set biding limits otherwise you could get carried away and end up overpaying.

Why would you take out a bridging loan to buy at auction?

Here we have provided examples of why a bridging loan would be more suitable for an auction purchase:

  • The property is not habitable and requires refurbishment such as a kitchen, bathroom etc to be classed as habitual.

You intend to purchase the property and then carry out extensive changes such as converting an

  • Office or a house into flats.
  • You are buying a plot of land which you intend to develop upon.

By speaking to a experienced broker they will be able guide you and source the right finance product to allow you to complete the purchase.

What sort of properties are sold at auctions?

There can be a real variety of properties for sale at auctions such as:

Before bidding at an auction it is advisable for you to get the property valued or at least have an experienced builder inspect the property.

I have bad credit – Can I still buy at Auction?

There are lenders available in the market that are happy to provide finance options to clients that have bad credit registered such as missed payments, defaults &/or county court judgements (CCJ). The options you have available and the rates charged will depend upon when the bad credit was registered, what type of bad credit it was and has it been satisfied. Working with an experienced broker who has helped many clients purchase at auction is important as you want to get this right before winning a bid and putting down a deposit.

Are you considering buying at auction with a mortgage? – We Can help!

Helping clients purchase at auction is what we do! – Call The Moneyhub Limited on 0203 725 5830 and speak to one of our highly specialised and dedicated finance team or you can complete an enquiry form which will allow you to schedule a call time.

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SPV Mortgage FAQ’s

Yes – There are lenders that offer mortgages where the property is rented out through a platform such as Airbnb. Not all buy to let mortgage lenders allow properties to be rented out on Airbnb, so getting the right mortgage is important.

You are best to speak with your lender or to read the terms and conditions of your mortgage to ensure you are legally able to let your property in this manner.

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