Get a Mortgage Before or After Auction?

As with most property sales when you buy at auction you will need a deposit. This will have to be 10% of the price of the property so you have to make sure you have the finance available before you get to the auction house.

However while you only have to pay the deposit on the day you then have just 28 days - four weeks - to pay the remaining amount.

When you bid at auction and your bid is accepted you are legally obliged to follow through with that sale. Whether you decide it was a bad idea or change your mind, it doesn’t matter. You have agreed to buy the house and buy the house you must. There is no point complaining that you got over-excited or went over your budget.

You are now in a legally binding contract. And this means you have to come up with the cash within 28 days. For this reason it is vital that you have the mortgage in place before you even go to the auction.

Auctions aren’t as spontaneous as you may think

You may think auctions are spontaneous, that people just decide one day to check one out and then come away with a new four-bedroom detached. But that is not the case. Because the sales are quick there is the common misconception that there is no preparation involved. But there is plenty. You must make sure you speak to your mortgage broker beforehand to sort out your mortgage.

Make sure you are clear with your mortgage broker about how you intend on buying the property and discuss plans for what will happen if you don’t get the property, how easy will it be to cancel the mortgage? Will there be charges involved? Your mortgage broker will find you the best lender to use and make sure your lender is also up to speed with the process. It is important to be honest at every stage.

Will the mortgage cover my deposit too?

Not so long ago lenders were offering mortgages at 100% loan to value. This meant they would lend you 100% of the cost of the property. Nowadays you need a deposit as most lenders will only lend around 85% of the property’s cost. However since you are buying at auction and therefore could be getting a big discount on the property there is a chance your deposit could be covered. Check with your mortgage broker to make sure.

Bridging the gap

Neither the deposit nor the mortgage however are likely to be available to you on the day of the auction as it takes so long to release funds. This is where a bridging loan comes in. Bridging loans are short-term loans, with high interest rates, that are intended to tide you over until the original mortgage is available. The longer you have the bridging loan however the more you’ll pay so make sure the mortgage is in place before you take out the bridging loan. If it turns out you can't get a mortgage and you have already taken out the bridging loan you will fork out a fortune in interest.