Buying property at auction is an exhilarating experience, even for experienced auction-goers. But there are lots of things worth considering before the big day. Here’s our complete guide to buying property at auction — from planning and research to budgets and auction finance.Apply Now
If you are in the process of purchasing a new property, at some point you will come across the option to buy a home at auction. It’s a great way to avoid the lengthy process involved in buying from traditional channels like via an estate agent. However, before you go down this road you will need to be aware of some important considerations. This article will help you avoid some common pitfalls and maximise your chances of getting a great deal when buying a house at auction.
In the weeks leading up to a property auction, you will need to dedicate some time to research the different areas and neighbourhoods that appeal to you the most. Make a shortlist of the area codes that are your first, second, and third preference etc and then contact a local property agent about auction houses. If you request to be added to a mailing list, you will be the first to know when an auction is arranged covering one of your desired locations, and they will often send you an auction catalogue in advance of the event. This will detail the auction properties along with their guide prices.
After viewing the catalogue, you might have spotted a property that you like. This is the time to contact the auction house to arrange to view the property. Once the viewing day comes around, you will need to spend plenty of time inspecting the property. It helps to have a handyman or ideally an architect, whose expert eye will pick up on less noticeable problems that might have slipped your attention.
If you like a property, you should ask for the auction particulars. This will contain all of the important information, but it might be wise to also request a legal pack to tick off all of the boxes. It would be good if you had a solicitor to look over the legal documents with a fine toothcomb to make sure everything checks out.
While you may want to be patient and research every jot and tittle, bear in mind that there are often only four weeks from the official publication of the catalogue until the day of the auction.
When it comes to buying a property at auction it’s easy to get carried away, especially when FOMO kicks in. For this reason, it's critically important to set a budget and commit to not going a penny higher, under any circumstance. No property is worth paying above what you had set out to pay, given that you will have a higher mortgage and bigger monthly repayments.
On the day of the auction, arrive early and speak to one of the agents to see if there have been any changes to the catalogue. Familiarise yourself with important terminology, for example, guide price and reserve price. The guide price is where the bidding starts and the reserve price is the minimum amount that the seller is willing to accept. The reserve price will not be disclosed, but a good rule of thumb is that it will be 10% higher than the guide price.
First-timers at auction are often not sure of how to make a bid at an auction. There is nothing to be worried about. You simply put your hand up at a price that is within your budget. In some cases, you can use a paddle, but they are usually becoming less popular in modern property auctions. Don’t get caught up in a bidding war, where egos become the driving force, which could easily end up in you paying far above your budget. It’s worth knowing that an agent or solicitor can bid on your behalf if you can’t make it on the day. Some auction houses will even accept phone or proxy bids, although the auctioneer will require written permission from you.
If you are lucky enough to be the highest bidder at an auction, you will be asked to exchange contracts that are first signed and pay the deposit immediately, so you will need to have that prearranged with a mortgage lender. You will be bound by the terms and conditions of the sale at this point and become liable for the insurance of the property. Cancelling the sale at this stage could result in extensive penalty charges. Be advised that the terms and conditions are different at an online auction, this is a modern method that carries its own risks and rewards.
You can get fixed rate mortgages for a period of time which ensures your monthly repayments do not increase, there are variable rates which can change, and there are even “blended” rates (a mix of the two). This is an important choice, because it determines not only your monthly payment amount, but also how much equity you’ll build up in the purchased property, and how quickly.
Stamp duty land tax is payable on properties that cost £150,000 or more. The amount your business pays is a percentage of the purchase price of the property. Your accountant can best advise with regards to your tax liabilities.
Commercial mortgage interest rates can be fixed against the base rate or the LIBOR (the rate at which banks lend to each other). In addition, lenders will require a cash deposit or additional security which will help offset the risk.
This can be a viable option and the rent can help with your monthly mortgage repayments. Due to its complex nature, it would be recommended to speak to one of our business finance experts to explore this great option – and see if it would suit you.
You will have to pay a small percentage for arrangement and legal fees when you purchase commercial property, so it’s worth speaking to the lender and an intermediary like Funding Options who can explain these terms simply and ensure you know the full cost. It is also worth considering refurbishment costs, with the more organised factoring this into initial costs when selecting their property.
Almost all auction houses will require a 10% deposit on the day of the sale. Two forms of photo ID will also be needed. At a minimum, you will have 14 days to complete up to six weeks, in which time the balance of the sale price will have to be paid in full. The official documents will outline any outstanding costs and completion details, so you will need to scrutinise these, ideally with the help of a solicitor.
There is an opportunity to still snap up a property if it has remained unsold at the auction. Most auction houses with a registered office in the UK will be in a position to put you in contact with the seller, where you can make a private bid for the unsold property. This will involve registering your interest with the auctioneer before the auction and waiting for a private meeting after everyone has left the building. This is a great way to get a discounted property, as the seller will be deflated, having not sold the property and could be open to parting ways with the house for considerably less than they envisaged.Get commercial mortgage
Asset Lending & Property Team Lead
Vivek Seda is the Asset Based Lending & Property Team Lead at Funding Options. Vivek has been in the commercial finance industry for over five years, helping SMEs in the UK access over £40m of funding in that time. He also supports the business on working on corporate finance and structured transactions successfully funding Acquisitions and MBOs for businesses.
Disclaimer: Funding Options helps UK firms access business finance, working directly with businesses and their trusted advisors. We are a credit broker and do not provide loans ourselves. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. We are also able to make insurance introductions. Funding Options may receive a commission or finder’s fee for effecting such finance and insurance introductions.
*Eligibility criteria apply - see Tide website for full details.
Funding Options Ltd is incorporated and registered in England and Wales with company number 07739337 and registered office at 4th Floor The Featherstone Building, 66 City Road, London, EC1Y 2AL.
© Funding Options Ltd · Authorised and Regulated by the Financial Conduct Authority · Reference Number 727867