If you require a mortgage or loan, then the most important thing is to arrange your Property Auction Finance before you bid:
If you leave it until after the Property Auction you will still need to pay 10% of the final selling price on the auction day and the remaining 90% within 28 days. (bear in mind this is only 20 working days!)
Failing to arrange your Property Auction Finance beforehand is a potentially disastrous oversight. Yet despite this, it is not uncommon for the uninitiated auction buyer to neglect to arrange finance before bidding and to then fail to come up with the funds in time to complete.
Under these circumstances the buyer will lose their 10% deposit and no amount of pleading with the auction house will get the deposit back.
How to Arrange Finance before the Auction
The first thing to do is to speak to your Bank or Building Society who will explain their terms of lending and provide you with any information specific to the auction process.
The key thing is to get a Mortgage Agreed in Principle. A Mortgage 'Agreement in Principle' or (AIP) is a conditional offer (not a guarantee) confirming that the lender will give you a mortgage on the property. You will still have to go through the proof of earnings stage afterwards. Typically AIP’s can be carried out over the phone in around half an hour.
You may be confident that you have the deposit and income covered but this does not mean that the lender will not want to ensure whether the intended property is habitable and mortgageable.
The bank or building society will also want to carry out a mortgage valuation survey to assess the property's worth before they will lend on it. Don’t confuse this with a structural or Home Buyers Survey. The lender is only interested in its ability to recover the loan in the event of a default, not the condition of the property. Always get a Home Buyers Survey before bidding at a Property Auction.
If the property is not habitable, all is not necessarily lost. Some lenders will lend in theory but they will retain the loan until the property has been made habitable (i.e. renovated). This should only be considered if you are able to complete with your own money and are able to hold off drawdown of mortgage funds until you have restored the property to a habitable state.
An alternative is to arrange bridging finance to cover the period or renovation. Bear in mind however that Bridging loans are considerably more expensive than mortgages and if you are subsequently unable to secure a mortgage you could be lumbered with a high interest loan. So we advise you don’t buy on the basis of a bridging loan in the hope you can later arrange a mortgage.
Another very important step is to get a Solicitor to review the auction legal pack before you bid. There are a multitude of legal complications that can arise that will prevent a lender from lending after the auction and you Solicitor will advise you accordingly.
Only recently a Fridaysmove client found out that there were only 4 years left on a lease after having paid 10% following a successful bid. The lender has a minimum unexpired lease lending policy of 80 years!
You must protect your self against legally defective titles in the same way as you would against a structurally defective property.
The best way to do this is to get a SPAR or 'Solicitors Pre Action Report' which can cost as little as £99.
Mortgage Lender criteria change all the time
You may have an existing lender and think you are aware of all of their lending criteria. However the basis and terms on which lenders are prepared to lend have changed significantly over the past 2 years and ongoing changes are expected.
Once you win the Property Auction
If you are the successful bidder then we strongly advise that your first call is to your chosen lender to both inform them that you have bought the property and to give them a firm completion date.
You should also give them the details of your Conveyancing Solicitor and ensure that they have a direct line of communication.
The next call should be to your Solicitor to give them the same news along with the details of your lender.
Don’t then sit back and assume everyone is scuttling around to make things happen. Stay on top of the situation and call both your solicitor and lender daily until such time as you are satisfied things are progressing.