The new pensions freedoms are finally here and many savers will be considering taking a lump sum from their pension pot and investing in bricks and mortar.
Whenever we think about buying a property either to live in or for investment purposes, we think ‘estate agent’. But buying at auction is a good option, especially if you’re looking for value for money.
If you think you can handle the pulse-raising drama in the auction room, here are a few more reasons to buy through a property auction:
Auctions really do offer the opportunity to pick up a bargain – whether it be in furniture and antique auctions, or when it comes to buying houses. The huge trend for these types of programmes on TV shows that this is clearly an area of interest for the British public.
It’s a myth that you only see an auction lot at the auction room. Just as if you were to buy through an estate agent, you can view a property on designated open days. This will give you a chance to eye up the competition and confirm that the property you intend to bid on is definitely for you.
If your hand is up when the hammer comes down then you will have exchanged contracts and the property will be yours. No one will be able to step in and take it away from you: there is no chance of the seller changing his mind, someone gazumping you or a break occurring somewhere in the chain of transactions.
You will have bypassed that anxious, uncertain, often lengthy period which private treaty buyers experience between agreeing a purchase and getting to an exchange of contracts.
If you want to get your investment property on the market fast, buying at property auction will ensure that. Properties sold at auction have no upper chain, so you don’t have to worry about the chain falling through.
There is a fixed timescale at the beginning, and once you have purchased the property the period from then to completion is usually 28 days. This also means you know how long you have to evaluate the property, obtain advice and expert opinions, and determine your maximum bid price.
Auction properties often require improvement and value enhancement. Many require work that can be tailored to your personal requirements while some need cosmetic work to make them suitable for letting.
Some auction lots have good development potential, while others offer change-of-use options (subject to planning) and can be converted to suit your future needs.
If you’re looking for opportunities to add value and generate resale profits, a property auction might be the best place for you.
You can forget any nasty surprises. You will have access to all relevant documentation including searches, title, leases on tenanted property, relevant planning permissions and scheme layouts for development plans. These are generally free of charge.
If you buy a tenanted property you benefit from receiving rental income from the day of legal completion.
In effect, your investment starts delivering from the moment you take ownership and you can factor this into your evaluation of its return. The legal benefits of the tenancy agreement will pass over to you along with the responsibilities that it contains.
Bidders can either pay by cash or access finance from a mortgage lender or bridging lender.
There are specialist short-term lending options available that will enable you to complete your purchase with temporary funds, prior to your preferred long-term mortgage being put in place.
Consult a mortgage broker to find out the best way to apply for a mortgage. Although most lenders will provide mortgages on homes bought at auction, the process can be slightly complicated as the final paid price is not set until later.
Once the hammer falls, the winning bidder must pay a ten per cent deposit, with the remaining 90 per cent required within 28 days. With such a short window of time, it’s wise to ensure you have a loan or mortgage agreed in advance of the auction and an application in process, or there is a high risk of losing the deposit.
Andrew Binstock is a director at property auctioneers Auction House London