Buying a house at auction can be a great way to snap up a property bargain, or to avoid a potentially long buying process. That being said, it can also be a cut-throat and challenging means of buying your new home, and once the hammer falls, there’s no pulling out of the deal. This is why it’s very important to understand the process of how to buy a house at auction beforehand, and what you can do to make your experience run as smoothly as possible.
Find an auction house
Firstly, you need to locate a good auction house that deals in property within the area where you want to buy. After you’ve found one, get on their mailing list for property catalogues, which give you information on things like viewing times and guide prices. They are usually available around a month prior to the auction, and allow you to identify the properties you like the look of and book viewings.
Finding the right auction house
The maximum amount you can borrow on a buy to let mortgage depends on how much rent you can charge for the property. Generally, lenders will require your rental income to be around 25-30% higher than the mortgage payment. You may also need to prove your affordability, which could mean the lender requires you to be on a salary of £20,000-£25,000. This shows the mortgage company that you could still afford the repayments even if the house is empty for a period of time.
How much does it cost to sell a house at auction?
Typically, auction houses charge a commission of around 2.5% of the selling price of your property. This is potentially more than many high street estate agents, but it’s worth working out what you’ll pay if you’re looking at alternative ways of selling your house. In addition to the commission, you may also have to pay an administration fee, advertising costs or entry fee, which could be in the region of £300 – £400.
Most auction houses provide buyers with an information pack that will have things like legal documents and title deeds in it, so it’s best to find out how much you have to pay for this on top of the other costs. It’s also worth remembering that you’ll still have to pay these fees even if your sale doesn’t go through.
Aside from the auction house, you’ll also need the services of a conveyancer, just like with a private sale. You should include the cost of this in your budget, as your conveyancer will help you with the legal side of things before your sale, on the auction day, and afterwards too.
How much is stamp duty land tax on buy to let properties?
A new law was brought in on 1 April 2016 that saw an additional 3% added to every SDLT band on buy to let properties above £40,000 if you already own another property. This means, for example, that if you’re buying a property for £250,000, the stamp duty will cost £10,000 instead of £2,500. There are also changes to how tax on buy to let property works. In the past, you could offset mortgage interest and buy to let fees against income tax at up to 45%. This tax relief is being reduced, with the new cap at 20%, and you should obtain specialist tax advice if you think you may be impacted.
Setting a guide price and reserve
The auctioneer will help you with the guide price, which gives potential buyers a rough idea of what the auction house thinks the property will sell for. You don’t need to worry too much about this, but you do need to think carefully about the reserve you set. This is the minimum price you’re prepared to sell your home for, which is kept private between you and the auctioneer. If the bidding reaches your reserve, your property is now sold – there’s no backing out. This is why you need to choose your reserve wisely, and don’t worry too much if you feel that you’ve set it too high, as there’s always the possibility you can negotiate with a bidder after the auction.
Should I accept an offer before the auction?
As your property’s advertised through the auction house, and there’s the chance that lots of people will go to view it, it’s very common to receive offers prior to auction. A potential buyer might be keen to secure a deal before it goes under the hammer, leaving you with a decision to make.
Obviously, you need to weigh up how good the offer is, and whether it meets your expectations. It’s also worth considering that you’ve already paid the fees and costs involved, and the reason why the buyer wants to snap it up. This is probably because they think it’s going to go for much more at auction, so they want to wrap up a good deal. If you decide to proceed with the auction anyway, the offer you received could help you to set your reserve.
How long does it take to complete after auction?
One of the major draws of selling at auction is that the process is quicker than usual – the sale should be completed no later than 28 days after the auction. This means that your house could be sold less than two months after deciding to put it up for sale with an auction house.
Disclaimer: The article above is only a rough guide to give you some idea of the of what is involved with Help to Buy Schemes and conveyancing.