So, you’re thinking of taking a leap and buying a property at auction – congratulations! But before you start picturing yourself as the proud owner of a charming fixer-upper, there’s one thing you need to sort out first: getting a mortgage.
Now, whilst it is possible to get a mortgage on an auction property, it can be more challenging than getting a mortgage for a traditional residential property purchase. One reason for this is that the ideal investment property often needs a whole lot of work doing before it’s fit for living, which often means it is ‘unmortgageable’ – i.e., doesn’t have a functioning bathroom or kitchen.
Getting a mortgage on an auction property is a bit like trying to win a game of Jenga. One wrong move and the whole thing could come tumbling down. But fear not, Propp’s here to guide you through the process!
First things first: the need for speed.
Auction properties have a shorter completion deadline than your average property sale, typically 28 days, so you’ll need to move quickly. Don’t let your mortgage application drag on for weeks on end, or you could find yourself missing the deadline and losing your deposit.
This is why bridging finance has become the go-to tool in a property investor’s toolbox to get auction purchases over the line. They’re an excellent tool for property auctions for two reasons:
Speed – Bridging lenders are geared up for speed because this type of finance is specifically designed to step in and bridge a gap between a sale or longer-term finance. In a pinch, bridging lenders can be super flexible to help get you the finance you need. We got funds into a client’s account in just two days recently which saved him from losing a £100k deposit!
Flexibility – Most auction properties need some love. And a bridging lender doesn’t care what state the property is in when you buy it. They include the money to refurbish the property in the original loan with the expectation that you pay it all back in one lump when you flip the property or refinance onto a buy-to-let mortgage.
Next Up: The Deposit
You’ll need to have a non-refundable deposit ready to go when you win the auction property, so make sure you’ve got that cash stashed away somewhere safe. And no, the auctioneer will not accept an IOU.
Speaking of money, you’ll want to get an idea of the finance you can access before the auction. That way, you’ll know how much you can borrow and can bid confidently to secure your dream property, knowing you can pay for it if you win.
This is where Propp.io becomes your best friend. Even while you’re sat in the auction room, you can plug your numbers in and compare the cost of a bridging loan, rates and fees for your chosen property in a couple of seconds, helping you make an informed decision on whether an investment is viable.
But beware: not all lenders are created equal when it comes to auction properties. Some may need a valuation survey or be more cautious about lending on a property in need of repair. Again, this is another area bridging lenders excel – they often accept desktop valuations (or automated valuations) which speed up the process significantly.
And speaking of repairs be realistic about the condition of the property. It’s all well and good to dream of transforming a crumbling wreck into a palatial estate, but you’ll need to convince your lender that the property will be worth enough to pay back the finance, cover the refurb costs and generate a profit for you. Get a survey done to assess the true condition of the property and factor any repair costs into your budget.
And lastly, our final point: It’s important, and we cannot stress this enough, to seek advice from a clued-up bridging loan broker who can guide you through the process and help you find a suitable lender. Don’t worry though, Propp have you covered on this bit.
So, there you have it. Getting a mortgage on an auction property might feel like a game of Jenga, but with a bit of planning, you can come out on top. And when you do, you’ll likely have acquired a property under market value, completed an excellent project and added some value along the way.
Good luck, and happy bidding!
Chloe Rule
