This article was written by us for Sarah Beeny’s “At Home” publication.
So you want to buy a property at auction? Auctions can seem complicated at first, but here are a few tips from CPC Finance to guide you through the process…
There are plenty of reasons people purchase property at auction, but regardless of what property the buyer has in mind, there are certain pointers to follow:
1) Do your research
Identify the area you wish to buy in and the type of property you wish to purchase. Consider whether the area is suitable, the potential rental income and local management companies if you do not intend to manage the property.
2) What are your finance options?
Short Term Loan (STL) – if you need to carry out work on the property, you have the choice between light and heavy refurbishment products which will depend on the amount of proposed works to be carried out.
Development Finance – if you are purchasing land to build property, development finance would be used. A typical set up would assist with the purchase of the land and the build costs.
Buy to Let (BTL) – if the property you are looking to purchase requires no work to be carried out before letting out, a Buy to Let (BTL) term loan or House of Multiple Occupation (HMO) term loan would be suitable.
Experience is not essential but would give you more options in terms of products available.
If you are looking to live in the property immediately after purchase, then this would be a regulated mortgage contract and additional requirements would apply.
If you have taken mortgage finance in the form of development finance or short-term loan, you will need to confirm your proposed exit route with the lender at application stage. This would normally be either the sale of the property or a new longer-term mortgage from the same or a new lender.
PREPARING FOR THE AUCTION
Once you have identified a suitable property, contact the auction house to register your interest. If you are successful with your bid at the auction you will be required to pay a 10% cash deposit on the day. You should check the acceptable methods of payment for this and if the auction house charge any additional administration costs.
There are further considerations to be made to check the property you are interested in is right for you:
1) Check the history of the property
For example, check the purchase prices that have been paid on similar properties in that area. For a small fee a copy of the title register and plan can be downloaded from the Land Registry, usually showing the price paid for the property as well. It is also worth checking the demographics of the area online and current and previous planning applications on the property on the local authority website.
2) Legal considerations
The next step is to download the legal pack from the auction website and provide this to your solicitor to review and recommend any additional searches to be carried out.
If the property is not being sold with planning permission and you might need it, make the necessary enquiries to the local council and confirm with your solicitor the associated legal costs.
It would be advisable for you to inspect the property and take a surveyor with you to make you aware of any potential planning or development problems.
3) Mortgage finance
If you require mortgage finance, try to obtain an Agreement in Principle. This is confirmation from the lender that they are happy to lend to you and that the application is subject to a valuation report only.
Alternatively you may wish to pay for a mortgage valuation to be carried out before the auction to ensure the property will be suitable for mortgage purposes, and you will be able to attend the auction with a formal mortgage offer. However, this is a risk as you may not be successful in bidding for the property concerned.
ON THE DAY
Get there early
Arrive in plenty of time to confirm your registration and familiarise yourself with the surroundings – ensure that you listen carefully to any announcements as there may be changes to any of the properties being offered for sale including their withdrawal.
You will be given a personal bidding number on a card which will link with your personal details provided to the auction house. Enjoy the auction but do not get caught up in the emotion of the auction room and go above your ceiling price.
If you are successful you will be required to provide a 10% cash deposit on the day. You will also be required to provide original photographic ID together with a utility bill (dated within the last two months) confirming your name and residential address. A period of 28 days (20 working days) is the normal timescale for completion of the purchase.
• If you are creating a portfolio of properties keep this updated after each purchase or refinance – email us at firstname.lastname@example.org for a portfolio template
• Use a mortgage broker as you may be able to secure cheaper mortgage finance by using a different property in your portfolio to raise the finance. It is useful having the funds in your bank when attending the auction for extra peace of mind
For more information or help do contact us at CPC Finance.