Contractor mortgages for auction properties

[jamesbrown]

When I did it, it took a day between speaking to Freelancer Financials and getting an agreement in principle in place. It took three weeks between the auction date and the valuation - mainly because no-one could get hold of the vendors to get into the property because they had already left the country.

The mortgage broker should have some kind of indication of how long it should take, though - FF were "reasonably confident" that it could be done in the four week time scale.

In the end, when the valuation came back, it meant that we wouldn't get a mortgage on that property, so we had to use alternative funding to complete the purchase. We could have walked away and lost our 10%, or we could have walked away and lost more than 10%, so unless you are in a position to write off those kinds of sums, then I agree that it is a risky proposition to rely on a mortgage when buying certain kinds of property at an auction.

I never thought that we wouldn't get a mortgage on the property - based on the fact that it was habitable (the family had lived there for seven years), had a better kitchen and bathroom than my current house, and was mortgaged with HSBC.

I think that's illustrative of some of the risks, but also of managing them properly, as you had an appropriate back-up in case the mortgage fell through.

[Mark McBurney@CMME]

If you have the mortgage in principle organised with the lender, then the only thing that adds delay from there is them actually getting into the property and valuing it.

So, if you are planning on buying at auction, get the mortgage in principle lined up beforehand, and make sure you have enough cash for the deposit straight away - normally 10% plus charges plus VAT, to be paid there and then.

And don't forget to turn up at the auction with your photo ID and other things as required by money laundering legislation - the last thing you want to do is get there all ready to go, and then find that you can't bid because you forgot your ID.

A mortgage in principle is nothing anywhere near a mortgage application.

A mortgage in principle is just a credit scoring exercise, nothing more. You could approach HSBC and give them the figures from your contract, and they'd probably give you an AIP - totally aside from the fact they will never lend against contract value in a month of Sunday's.

You cannot submit a full mortgage application without property details, so the only way to get the ball rolling early is to apply for a mortgage for a property that you don't know yet whether you're buying. Not the most prudent idea in the world.

Even the absolute fastest lenders will take 3 weeks from application to offer, if you're really, really lucky, so I can absolutely guarantee that no mortgage broker will commit to guaranteeing a mortgage offer within 28 days.

It certainly can be done, but there are inherent dangers of trying it. If you can afford to take the risk of potentially losing the 10% deposit, then it could be worth a try.

EDIT: Not meant as a diatribe towards you, apologies!

[MicrosoftBob]

It's good to know this, at least I can dampen down my missus expectations and prepare her that if we do it a bridging loan is most likely going to be needed if we get that far

Life is never simple

[TheFaQQer]

It certainly can be done, but there are inherent dangers of trying it. If you can afford to take the risk of potentially losing the 10% deposit, then it could be worth a try.

A delay in the process wouldn't mean you lost the 10% deposit, it means that you would pay interest during the period between when you were due to complete and when you actually completed. You would only lose the deposit if you weren't able to complete at all.

[TheFaQQer]

It's good to know this, at least I can dampen down my missus expectations and prepare her that if we do it a bridging loan is most likely going to be needed if we get that far

Life is never simple

Buying and selling property at auction is inherently risky, for all parties.

I saw one property sell at the auction, and the guy said to the staff "I'll just go and grab the chequebook from the car" and disappeared completely. I can't begin to imagine how the vendor felt after going through the elation of selling and then having it ripped away from you at the last minute.

Make sure you know your limits - I know people who only bid by proxy because they know the temptation to add "just one more bid".

[Mark McBurney@CMME]

A delay in the process wouldn't mean you lost the 10% deposit, it means that you would pay interest during the period between when you were due to complete and when you actually completed. You would only lose the deposit if you weren't able to complete at all.

Not always, it depends on the terms of the auction. Some have a strict 28-day 'all or nothing' deadline.