Buying Property at Auction in the UK: Things you need to know

Millie Tyler
Nov 15, 2022
1 min read

One of the key mediums by which we have found many clients find some of the best deals for #property in the #UK is buying at #auction. However buying at auction comes with some very specific requirements even for a seasoned #investor.

Here are some of the key elements you need to consider if you are an investor looking to move into the UK property market through buying at auction.

Cash Is King

Typically the time between winning a bid at #auction and completion is usually #28days, however you should always check in advance as the period may be shorter or longer depending on the lot and the auction house. It may also be the case that other charges become payable on completion which you should check. In many cases you will need to have the full offer amount in cash to make your purchase in advance of your bidding process or be able to get a quick turn-around on a mortgage offer and agreement (28 days is typically, an impossible window to accomplish this).

Bridging Loan Are Friend AND Foe

One way many investors, who do not have the luxury of large amounts of cash in hand, use to buy at auction that requires completion in a short window is to use a #bridgingLoan.

A bridging loan is short term (typically a maximum of 1 year) loan (from £50,000 to £10m) available from specialist companies which are secured against the property but are not a traditional mortgage. A bridging loan can be secured with a lender between 5 and 14 days and as quickly as 48hrs. It's important to understand the difference between a #mortgage and a bridging loan.

Any "down side" of a bridging loan is down to the far higher interest rate payable on any amount borrowed, these are typically great than twice a typical #mortgageRate. However as they are used as an interim measure to secure a property while a traditional mortgage can be applied for, they often serve the purpose necessary to complete the auction sale.

When Using Bridging Finance, Advance Your Mortgage As Far As Possible, As Early As Possible

If you intend to use #bridging #finance in order to secure completion of an auction bid it is important to know some of the key things as to how you intend to exit #bridgingFinance. This is typically done through a conventional mortgage with a bank or building society.

As such, it is key that you know where you intend to get your conventional mortgage, what their requirements are, these may include;

what information/documentation you will need,
how much deposit you may need (which may be part of your bridging amount),
what their expected turnaround time is
can you book your mortgage advisor appointment in advance (for example, the day after your planned auction)

and also more specific elements such as;

what the lenders #surveyor process/ turnaround time is
can you book your #survey in advance

Conditional or Unconditional Sale

#UnconditionalAuctions have the same basisc as a traditional auctions.

If successful, a 10% #deposit will be required immediately with completion and exchange 28 days later with the balance of funds (and any ancillory costs) required.

A #conditionalAuction, requires a reservation deposit after the auction which gives the right to buy the property. 28 days are then allowed to exchange contracts and a further 28 days to complete giving you time to arrange a survey, mortgage or other finance before #exchange.

Read The Auction Particulars

Each auction, and auction house, will have specific rules, requirements both for actions before the auction occurs, during the auction process. The #particulars will contain key information.

You may in some cases also need to request a separate legal pack to get the full picture of a lot. This may require you to register to bid with an auction house (e.g. Auction House London).

Searches will often included in the legal documents, but a solicitor should be engaged co complete one prior to auction.

Legal documents can differ between properties and it may be wise to engage a solicitor to look over the legal pack for any hidden covenants or loopholes that could end adding hidden costs or time frames.

The Difference Between "Guide" and "Reserve" Price

If you are new to buying at auction is is important not to be swayed into looking at (or bidding for) a property based on the guide #price.

The #guidePrice is just that, a guide, a guide to where the #auctioneer shouls start the bidding and is not relevant to the final price. Often the guide will be the bottom price for the property and will only go up. A #reservePrice is an undisclosed price between the seller and the auctioneer at which the property cannot be sold beneath. This means that if this price is not met, no bid will be accepted. A reserve price is typically not more than 10% different to the guide price. Both prices could change prior to the online auction.

Stay Informed

Many elements of an auction can change and it is important that if you intend to approach an auction, to stay informed.

As noted above, guide and reserve prices can change, auction particulars (and #legalPacks) may be updated, these are more widely known as an #addendum and diligent auction buyers should ask #auctioneers to keep them apprised of any changes.

Open Viewings

Many buyers believe auctions are a case of buying sight-unseen, however this is not always the case.

There are many cases where auction houses, especially those that are also estate agents, offer #viewings, particularly for empty properties. If there is an opportunity to visit a property, you should, or send a proxy on your behalf. Auction houses should send a representative to answer questions on the property, the sale, the seller (to a certain extent) and you may also get additional information not available in documentation by asking smart questions.

Tenants In Situ

There are occasions when properties may go to auction with sitting tenants. A sitting tenant is someone who is renting at the time an existing owner decides to sell. This is also known as "tenant in situ".

If a tenant is currently renting through any form of assured tenancy it's important that you as a prospective buyer understand what this agreement is, and how it may affect you as the buyer. A fixed term tenancy agreement, for example, has the right to remain in the property until that fixed term expires.

This may mean that you will be beholden to any rents agreed by this tenancy regardless of your purchase of the property mid-term.

Understanding tenancy terms is all the more important in the UK after the UK government announced the abolition of Section 21 which prevents property owners from taking ownership of their properties with "no fault" by the tenants, meaning existing tenancy terms and lengths are even more important.

BBC News - No fault evictions banned in UK - https://www.bbc.co.uk/news/uk-61817249

Set A Budget, And Stick To It

Understanding your finances are key to any investment, however this is especially the case when it comes to an auction purchase.

It may be the case that an auction property is more likely to require renovatative work, which means a budget is even more important in order that quality or scale of renovations are not put at risk.

Additionally if you are not buying your property with cash, you should have an understanding of the potential finance. Exceeding your budget, means a higher deposit requirement or a higher interest rate for any bridging loan. This may in-turn, reduce the amount of time you have to exit briding finance.

Ways To Bid

Once you receive authorisation to #bid prior to the auction there are a number of ways to bid.

This process may be via in-person #bidding which requires a specific registration requirements (arrival time, clear and concise bidding, identification documents in-hand on auction day). You may also bid via online bidding or #onlineProxy. With live online bidding, once you have registered to bid, you can watch the auction countdown online, and place bids live to ensure you are the winning bidder. If you are unable to bid in-person or on the day, with many auction houses you will be able to submit a highest offer by #proxy. The auctioneer (or a representative) will bid on your behalf during the auction process and you will be notified if you reach the reserve price

Success

If you are successful with any bid, you will be required to sign the contract and pay the required deposit on the day. When the auctioneer's gavel falls, any successful bidder is legally bound by the terms and conditions of the sale and liable for the insurance of the property from that moment.

Unsold?, You May Be Able to Buy It Privately

There may be scenarios where a property remains unsold. If it does not receive any bids, or - as noted above - it receives bids that do not meet the sellers reserve prie set with the auctin house. If unsold, the auctioneer may have been granted the authority to sell it privately in the room immediately after the sale. It is important to register your interest with the auctioneer prior to the sale and then stick around after the auction.

The Small Print

Ensure you check the terms and conditions of the auction house you choose to use, as noted above, by bidding you are agreeing to them.

It is important to familiarise yourself with any conditions of sale, what needs to be paid and when and how, what informatin you must have in-hand. The last thing you need is a surprise during bidding day.

Where To Find A (UK) auction Property

Some of the best places to find auction properties in the UK include:

Ensure Your Auction Company Is Legitimate

There are a number of companies across the UK who are able to, and do auction property.

As such it is imperitive that investors understand which companies are legitimate should the worst occur and they need recourse for a purchase.

There are a number of services which will indicate if the auction house you are using meets the UK government standards that will allows you to obtain restitution should it be needed if a transaction does not go as it should have or sufficient due diligence isn't paid, etc.

The Property Ombudsman (www.tpos.co.uk)

TPO is a government-approved scheme to provide independent redress in relation to disputes between consumers and property agents. It is a UK goverment-approved body whose members must adhere to a strict Code of Practice. Their representatives will fairly listen to any and all concerns. Looking for the above logo on an auction website, or searching for their membership, is often valuable.

National Association of Valuers and Auctioneers (www.propertymark.co.uk)

NAVA PropertyMark (The National Association of Valuers and Auctioneers) is a professional self-regulating body solely concerned with valuers and auctioneers. They will be able to investigate members for a number of issues including conflicts of interest, or acts of dishonesty.

Property Redress Service (www.theprs.co.uk)

While not focused on the auction industry, all property agents and professionals carrying out estate, lettings and property management work have a legal responsibility to join an authorised redress scheme and indicate this to their customer. A auction house that is affiliated or signed up to this scheme, will certainly be a good tick in a box to have.

Looking for the above logo on an auction website, or searching for their membership, is often valuable for peace of mind, but also to be able to tell which auction houses you should use.