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Can I get a Buy-to-let loan for an auction property?

Posted on 2019-03-29

Can I get a Buy-to-let loan for an auction property?

Buying at auction can be a good way to secure an investment property at a good price.  However the timescales to complete are strict, and failing to comply could incur you heavy penalties from the auction houses. We asked Craig Taylor, who is Head of Specialist Lending at One77 Mortgages*, what the considerations might be for securing a Buy-to-let loan for an auction property.  

Many times, we’re contacted by clients who are looking to purchase a property they’ve seen at auction, which they then intend to rent out as a buy-to-let investment. By far the simplest way of buying a property at auction, especially as a buy-to-let investor, is to be a cash buyer. However, this isn’t always a practical or possible option for most people.

Although auctions can be a very cost-effective way of investing in property, more often than not they’re not very compatible with being funded by standard buy-to-let mortgages. A recent case for a client helps to highlight some of the intricacies of arranging a buy-to-let mortgages for a purchase at auction.

A loan of £152,000 with an LTV of 80% for a property value of £190,000

We were contact by a client, based in Brighton, who owned their own home but had no prior experience as a landlord. They found a property in the nearby town of Eastbourne that was listed for sale at an auction with a guide price of £190,000. Their view was that it would be a good potential investment, if they were able to let the property to tenants.

The potential investment property required a degree of cosmetic upgrading in order to be put up for let at a marketable standard. After all estimates were received to undertake the improvement works and taking into the account the funds the client had available as a deposit, we estimated that the required loan-to-value was 80%, an amount of £152,000.

Due to the client’s inexperience as a landlord and the improvement works needed, we initially found that borrowing options were somewhat limited through the majority of lenders. Additionally the auction stated that the purchase must be completed within a timescale of four weeks from the date of the auction’s close.

Fortunately, we were able to source a specialist buy-to-let mortgage lender that could assist and were able to prioritise the client’s case in order to fit with the tight timescales we were presented with. This flexibility meant that the client was able to continue with a more-or-less standard buy-to-let mortgage, opposed to having to consider other funding methods, such as bridging finance.

Prior to agreeing to the buy-to-let mortgage, the lender required an inspection of the property.  They concluded that it was suitable to be used as security and in an adequate condition to let in its current state, without the need for the improvement works to take place prior to tenants moving in.  This allowed the client to then undertake the works with less upfront stress at a staggered rate over the coming months and years.


Making your Auction Buy-to-Let purchase

In essence, buying a property at auction with a buy-to-let mortgage may not be the easiest method, but it isn’t an impossible feat. To ensure the process is as smooth as possible you might want to consider a few of the points below:

  • Check and plan out your finances before looking at auctions for investments properties
  • Make sure you go on viewings, ideally you’d take an expert with you if you can, such as a builder, surveyor or architect
  • If your finances are sorted you might be able to put in an offer before the auction goes ahead
  • Check any details that the auction house provides, for example what identification or financial proof is needed at the point of purchase
  • Make sure you’re aware of all the admin fees or non-refundable deposits that the auction house apply
  • The guide price could be exceeded, so have a clear view on what the maximum level of investment you’re will to make is

With many property finance scenarios there is generally a solution available if the case is dealt with creatively and with an open mind.  Having access to a range of conventional and specialist lending sources is an asset we are fortunate to have and using a blended approach to our lending solutions encompassing both these facets can sometimes be invaluable.

If you’re in a similar situation and require advice on a property finance case, the Specialist Lending Team at One77 will be happy to take you through the options available.

Authored by: Craig Taylor – Head of Specialist Lending, One77 Mortgages*

What the * means above: If a link has an * by it, that means it is an affiliated link, and it is tracked to us. If you go through it, it can sometimes result in a payment or benefit to HomeLet.

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