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Buy to Let mortgage on an auction property

Property from auction

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Buying properties at auction is becoming increasingly popular, especially with the interest in home and property television shows. However, is this a good way of buying properties to rent out, particularly if you’re relying on a buy to let mortgage to finance the purchase?

Buying a property at auction

If you’ve never been to an auction before, then the process of purchasing a property can come as a surprise. When you bid on and win an auction property, you need to put down a 10% deposit and exchange contracts on the day. You’re then legally obliged to purchase the property and you’ll lose the deposit if you have to pull out. The sale will need to complete within 20 days, which is often too soon if the finance hasn’t already been arranged.

Financing an auction property

It is possible to arrange a buy to let mortgage on an auction property, but this process comes with considerable risks and costs on your part. You’ll generally need a deposit of 35-50% and have the mortgage offer in place from the lender before you bid. However, with auctions often happening at short notice, this can sometimes be too soon for a traditional mortgage process.

You’ll need a good idea of the potential price of a property in order to apply for a mortgage in principle from a lender. They’ll then require a valuation of the property, which can take up to five days. To apply for a mortgage offer you’ll have to complete all the identity checks and documents and it can take between two and four weeks for the offer to come through.

Even if you apply for the mortgage offer in good time before the auction, the process might not be straight forward. A lender can withdraw their offer before you complete on the property, leaving you at risk of losing your deposit and having to withdraw from the sale. You might also have to change the amount of the loan following the auction and the lender will then require you to start the process again. This new loan might not be approved.

Buy to Let house

If you require finance to purchase the property and have a decent deposit, then you could consider getting a commercial or bridging loan to tide you over in the short term. These offer much quicker application processes than a traditional mortgage, but the interest rates associated with them are often a lot higher. However, they can be a good solution until you can arrange a buy to let mortgage on the property, which will pay off the remaining balance on the loan.

The easiest way of buying an auction property, especially as a buy to let investor, is to be a cash buyer. However, this isn’t always a practical solution for most people. If you already have a property portfolio, then you might be able to remortgage one of these properties to release some equity. This process will take around two months, but you’ll then be in a much better position to move when the right property comes along.

Buying at auction with a buy to let mortgage isn’t impossible, but it’s certainly not the easiest solution. To make sure the process is as smooth as possible, you need to ensure that everything is organised prior to the auction and that you have the funds available to put a deposit down. After this you need to hope that the completion of the sale goes through without any difficulties.








About Catherine Stern

About Catherine Stern

Catherine Stern is a freelance writer with a background in marketing and PR. She currently writes web content on a range of subjects, from finance and business to travel and home improvements. As a working single mum of two young boys she understands the pressures that today’s working parents face and the topics they want to read about.

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