Welcome to Houses for Auction

Raising the Funds for Buying at Auction

They say that money makes money, and in the case of property bought at auction this is certainly the case. Unlike other forms of property sales such as discounted buy to lets, at auction you will require a reasonable sum of money to start with.

This can prove prohibitive for those with low capital or a poor credit history. However, for those who can afford to buy at auction this will remove some of the competition.

Mortgages for Auctions

If you have the money to buy a property outright then you are amongst the lucky few. Otherwise you will require a mortgage for part or all of the property. This is where conditions imposed by lenders will play a part in your financial strategy, based on the assumed risk the lender is repared to accept.

Lender Risk

Lenders are usually only prepared to lend a maximum of 85% of the amount you require. So as a minimum you will require the funds to pay for 15% of the property yourself.

Where a property bought at auction requires renovation, even if after the renovation the property wil be worth much more, a lender will not lend against the potential value of the property, only the current value of the property. You will need to pay for any renovations out of your own pocket.

Decision in Principle

A decision-in-principle can be obtained around 6 months in advance of buying at auction. A decision in principle is essentially a non-binding agreement with a lender to loan you a certain amount of money at a certain rate. Assuming the offer is still available, you can take the mortgage at any time within an agreed period.

As we know, the price of auction properties are not fixed, so try to estimate how much you will need as accurately as possible, and remember that it is always going to be easier to ask for more money than you require and subsequently adjust the amount to a lower value than the other way round.

Payment on the Day

Once you have made a winning bid you will usually have to pay 15% of the gross price immediately and the rest within 30 days. This is a legally binding agreement, so make sure you know what you will be required to pay and when, and have the funds ready to do so.

Fee Free Mortgages

Mortgages are expensive enough without brokers imposing inflated fees on top of existing costs. So why do they charge fees? To pay for their services of course.... don't they?.... What they don't tell you is that they also get paid by the lender for selling you a mortgage, and this is actually where they make the majority of their money. So some brokers provide their services at low or no cost and live off these 'procuration' fees from lenders.