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Can I Get a Mortgage on an Auction Property?

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Yes, if you are unable to buy with cash, it is possible to get a mortgage on an auction property.  Due to the fast nature of completion required, typically within 28 days (about 4 weeks), the type of mortgage you will need is called a bridging loan

How much deposit do I need for an auction property?

To buy an auction property you will need a big deposit, typically a 30% to 40% of the purchase price, a lot of properties are bought by cash investors who can move with haste. 

What are the costs?

Due to the nature of the lending, the speed and the additional risks involved, the fees are expensive with bridging loans. We always advise our clients to factor in the cost of finance in the overall investment figures to get a true rate of return. 

How does it work?

Due to the additional underwriting and the speed required, bridging loan arrangement and legal fees are much higher than with traditional mortgages. It is a similar process that is condensed from 5 months into 2 to 3 weeks therefore the cases are much more hands on and take a lot of time to process.

Whether you plan to live in the property or rent it out, a successful application for a bridging loan for an auction property will provide finance typically within 2 to 3 weeks within the completion guidelines. 

I’ve purchased the property, what’s next? 

Once you have purchased your property, you will have 12 months to refurbish it and complete a remortgage to repay the bridging loan. If you are going to live in the property then you will need a residential remortgage, if you are renting it out, you will require a buy to let remortgage.

If you are purchasing a doer-upper property, you will need to have a schedule of work ready with the various trades and an estimated completion date.

Often, professional property developers will purchase at auction using auction finance, complete the refurbishment work within the 12 months, and then sell the property on, repay the finance along with interest as part of the sale proceeds and then usually make a profit to reinvest in another opportunity.

It is always best to work alongside an independent mortgage broker, like us, who can advise on the full range of lending solutions available to you.  Depending on your personal situation there may be alternative products available to consider which will work out cheaper such as a secured loan on another property. 

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About the Author

Malcolm Davidson

Managing Director of UK Moneyman LTD

Malcolm is one of the UK’s most well-known and respected Mortgage Advisors. He is passionate about providing a 5* customer experience and he has also trained and mentored dozens of fellow Advisors in a career that is now in its third decade.

In addition to his day to day duties as Managing Director, Malcolm still gives out mortgage advice and feels lucky that his job is also very much his hobby.

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