When the hammer falls you are contractually committed, and completion is usually 28 days later. Most mortgages cannot move that fast. The finance has to be arranged before you bid — not after you win.
Leicester and the surrounding counties have an active auction market in residential, commercial and mixed lots, much of it property that mainstream lenders would decline in its current condition.
What you are committing to
On the fall of the hammer you have exchanged contracts. You will normally pay a deposit — commonly 10% — immediately, plus the auction house's fees.
Budget for the auction house's own fees, not just the deposit. On top of the hammer price you will typically owe a buyer's premium and an administration or contract fee, both payable immediately and separate from your solicitor's costs. These are not always shown clearly in the catalogue, and they catch first-time auction buyers out because the figure in mind is rarely the figure actually owed on the day. Check the exact charges in the legal pack before you set your maximum.
If you cannot complete, you lose the deposit and may be liable for the seller's losses. There is no cooling-off period and no "subject to survey".
That is why auction and finance have to be handled in the opposite order to a normal purchase.
Why a standard mortgage usually will not work
Timing. A residential mortgage application to formal offer typically takes two to four weeks in good conditions, and conveyancing longer. A 28-day completion leaves no margin for a valuation query or a slow underwriter.
Condition. Much of what appears at auction is there because it is hard to mortgage — no kitchen or bathroom, structural problems, non-standard construction, short leases, or properties with title complications. Mainstream lenders decline these.
Certainty. Even where a mortgage is theoretically achievable, "probably" is not good enough when your deposit is at risk.
Bridging finance is the normal route. Arranged quickly, secured on the property, repaid either by selling or by refinancing onto a conventional mortgage once the property is habitable. See bridging finance in Leicester.
Do this before the auction
1. Arrange finance in principle. Know what you can borrow and on what basis, so you know your genuine ceiling and can act the moment you win.
2. Read the legal pack properly. This is the single most important step, and it is where auction purchases go wrong. It contains the title, searches, special conditions and leases. Have a solicitor read it — not you, and not nobody.
Watch for:
- Short leases, which restrict lending and affect value
- Restrictive covenants limiting what you can do with the property
- Rights of way and access issues
- Missing title documents or unregistered land
- Existing tenants, and on what terms
- Special conditions requiring the buyer to pay the seller's legal fees or search costs — common, and frequently missed
3. View the property. Auction lots are sold as seen. Take a builder if the condition is questionable.
4. Set a maximum and write it down. Auction rooms are designed to make you exceed it.
5. Instruct a solicitor in advance, one who has done auction work and can complete in 28 days.
Modern method versus traditional
Two formats, and the difference matters.
Traditional auction. Exchange on the fall of the hammer, completion usually 28 days later. The pressure is immediate.
Modern method, sometimes called conditional auction. The winning bidder pays a reservation fee and typically has around 28 days to exchange and a further 28 to complete — roughly 56 days in total. That is sometimes enough for a conventional mortgage, though it is tight.
Check which format applies before bidding. The reservation fee on the modern method is usually non-refundable and can be substantial.
The refurbish-and-refinance route
The common strategy for auction property needing work:
- Buy with bridging finance
- Refurbish to a mortgageable standard
- Refinance onto a buy to let or residential mortgage
- Repay the bridge from the refinance
It works well, with two conditions. The refurbishment budget must be realistic, including contingency. And the exit refinance should be agreed in principle before you buy — a bridge with no confirmed exit is where this strategy turns expensive.
Talk to us before you bid
We can put a bridging facility in place in principle so you know your ceiling, and confirm whether the exit refinance is achievable on that property.
Arranging finance after winning is the expensive way to do this, and occasionally the very expensive way.
Call 0116 277 7536 or see commercial mortgages in Leicester.
More guides: commercial finance guides for Leicester.
