Inexperienced buyers warned about auctions

Property buyers looking for a good deal at auction have been warned about the problems of getting a mortgage on some of these homes.

Almost three quarters of first-time buyers have considered buying from an auction, but research from broker First Mortgage suggests that a third could be refused a mortgage.

David McGrail, compliance director at leading mortgage broker First Mortgage, said:
“The appeal of an auction is clear to see, the prices can be significantly lower than the property market in many areas of the UK.

“However, first time buyers or any buyer looking to get a deal at an auction, should exercise extreme care. Many of the properties for sale at the auction are there for a reason, they might have issues with damp, subsidence, vermin or even lack basic facilities, such as a functioning kitchen or bathroom.

“This means that getting a mortgage approved will be almost impossible, so what might be a good deal on the surface might turn out to be the opposite

“Properties in bad condition often end up at auction. Mortgage lender require a property to be habitable in order for them to secure a mortgage on it. If a property is not habitable then it becomes harder to sell in the event of repossession.”

He added that buyers have been inspired by property shows such as Homes Under The Hammer, Grand Design and Restoration Home.

The top reasons for why first-time buyers wanted to go to an auction included being cheaper (36%), being able to style the house as they wish (22%) and because they wish to rent the property out (17%).

McGrail added: “The average price of a property has risen 7.4% over the past 12 months, and in some parts of the country the rate of growth is even higher.

“This has left would be buyers in an incredibly hard predicament, facing higher interest rates due to having to borrow more money over a longer period and more at risk of negative equity due to their share of the house being lower.

“The average deposit has grown in recent times. Meaning that many are left paying even more money than planned for a deposit of the same or smaller percentage.

“Therefore, it is even more important that buyers are choosing wisely, are not rushing, and are seeking advice from a qualified professional.”

Comments 1

  1. My advice to first time buyers looking to buy at auction is: DON’T.
    As well as there being problems with the physical condition, there may be legal issues. As a property solicitor I had an unfortunate client who instructed me the day after bidding at auction. The property had been created by splitting a larger property in two. This had been done without planning consent and the property was unmortgageable. Naturally, the special conditions exculpated the seller. My client lost his deposit and was perhaps fortunate not to be sued for damages. I expect the slippery seller put the property back into auction a few months later waiting for another hapless buyer.

    Another problem is late amendments to the special conditions (or even late arrival of them) leaving little time for the buyer to read them, take advice if necessary and make an informed decision. First time buyers should also be aware that it is now standard practice for the seller to require, in addition to the purchase price, that the buyer pays legal fees at 0.5% (or more) plus VAT of the price and to pay for searches. On which subject, the searches in the auction pack may be incomplete and important Part II enquiries in the local search not raised.

    Auctions are great for some professional investors as they don’t waste time: once the hammer falls there is a binding contract. However, unless as a first time buyer you can buy for cash (and have resources available to sort out problems such as physical or title defects - most of which can be resolved with time and money) before mortgaging later, I would not buy at auction.

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