Can I buy a property at auction during the Coronavirus outbreak?
With some experts predicting as much as a 13% decrease in property prices, some savvy shoppers are turning their heads towards auctions, which are notorious playgrounds for property investors and developers seeking advantageous deals.
Auction houses may be closed until Covid-19 is under control but that doesn't mean that buyers will be left twiddling their thumbs.
Can I buy a property at an online auction during Covid-19?
Potentially yes, as online auctions are very much still taking place, offering overseas and UK buyers the opportunity to acquire land or property without the need to cross the procedural hurdles of a standard residential or commercial property transaction.
How does an online property auction work?
The modern method of auction has steadily increased, with buyers and sellers able to make transactions quickly and from the comfort of their home, even before lockdown.
So what exactly is the process of buying property at a digital auction?
Auction properties are displayed online, usually for 30 days.
Buyers register with the auction provider
They may also have to pay a ‘participation fee’, (this is usually refundable though not always.)
If a buyer sees a property they like and they have the finance or cash available, they place a bid.
The estate agent and/or auction provider will then require the buyer to prove they can make the purchase
What are the benefits of an online auction during a pandemic?
Some of the benefits of online auctions include:
The process is very transparent so a buyer or seller can immediately see how the bids are progressing.
Most online auctions can be viewed on a desktop, a mobile phone browser or on a tablet.
Bidders can comply with “lockdown” requirements.
Buyers can purchase available properties rapidly and with no chain.
Unlike traditional auctions, properties are displayed online with an auction timer enabling you to place a bid online at any time on any day.
How is it different to buying a property traditionally?
When you buy property at auction, the complete payment will be required within a particular timescale which is why it’s important to obtain the finance you need ahead of making a bid.
As soon as the hammer falls, you are in a legally-binding contract to purchase that property under the terms set out.
What’s the difference between an unconditional and conditional auction?
An unconditional auction requires the highest bidder to usually pay a 10% deposit on the day of the sale. The rest of the funds have to be secured and then paid within 28 days (unless otherwise stated in the legal pack).
If you fail to pay within this timescale, then you could lose your deposit and may be liable to pay the full amount. The cost of the resale of the property at a forthcoming auction may also be charged to you, depending on the terms of the agreement.
Securing mortgage finance for a conditional auction can be smoother for some borrowers, as the completion timescale is longer than an unconditional auction sale.
With a conditional auction, once the deal has been agreed, as the buyer you have a 28-day exclusivity period, which gives you time to sort out any due diligence without the fear of another buyer swooping in and making a higher offer.
After this 28-day period of exclusivity, you then have a further 28 days to complete the sale, which is similar to the terms of a traditional auction.
How can I buy a property at an online auction?
If you’re not a cash buyer, you may need to apply for finance to fund the purchase of your auction property, often in the form of a mortgage.
There are lenders in the UK that specialise in providing mortgages for auction but each one will have a different stance on how much they can lend and under what terms.
As with any mortgage application, your eligibility will be assessed to determine whether you can afford your loan repayments. To do this most lenders will look at your:
Source of income
The type of property you’d like to buy
Are there alternative ways of buying a house at auction?
Yes, some buyers use other means of finance such as a bridging loan to cover the payment of the property until they can renovate it, sell it on and then repay their loan.
A bridging loan is a short-term form of lending and can be more risky than a mortgage as the repayment terms are a lot shorter. However, the benefit of a bridging loan is that application time can be shorter, with less time to wait for the monies to be transferred.
Our guide on bridging finance is a great read if you’re looking for more information but feel free to contact our experts if you have a specific question or need advice.
Which auction properties are more difficult to mortgage?
The condition of the property is one of the biggest factors a mortgage lender will consider before agreeing to provide you with a mortgage.
The majority of banks and lenders will only approve the application for an auction mortgage if the property is in a liveable condition and immediately habitable or lettable.
Most lenders will be reluctant to lend money for a property in need of so much work and if the property doesn’t have a working kitchen, bathroom and heating system, you might find it more tasking to find a willing lender.
Can I get a mortgage to renovate a property at auction?
That being said, some lenders may be open to loaning money for auction properties in disrepair if the circumstances of the borrower are favourable.
For example, if the borrower were an experienced developer or a professional tradesman, it could be perceived that the likelihood of the property being completed is higher, which could in turn affect the borrower’s ability to repay their loan.
Buying a house at auction with a mortgage can be made possible with the assistance and expertise of a mortgage broker, so seek advice before making an application to avoid wasting money and negatively affecting your credit score.
Can I get a first-time buyer auction mortgage?
First-time buyers have no record of mortgage finance which can make it hard for lenders to predict whether they’ll be good borrowers. Therefore, a first-time buyer wanting to purchase a home at auction may face some challenges when it comes to convincing a lender that they’re reliable borrowers.
The lender may ask for a larger deposit and could also charge a higher rate of interest, though the size of your deposit and the rate you pay for your mortgage will depend on a variety of factors including your income and as mentioned before, the type of property you’re buying.
Every lender is different, so even if you have been rejected for an auction mortgage in the past, our brokers may be able to find you an alternative option.