Property auctions are great places to be if you want to invest in property.
You can often find a house to renovate and then sell for a profit.
But is it compulsory to be a cash buyer at an auction? And how can you buy a house at auction without cash in the UK?
Keep reading to find out.
Do I need cash to buy a house at auction?
The short answer is: not necessarily.
You only need some of the cash available on the day. You’ll only be asked to pay a 10% deposit on auction day.
(It is possible to get a loan for a deposit).
However, you’ll need to pay for the entire house within one month of auction day.
This is why most people at auctions are cash buyers.
However, you do not need to be a cash buyer to bid on a property at auctions.
There are other ways to finance the purchase…
How to buy a house at auction without cash
Get a mortgage
If the house is in good condition, you can use a mortgage to pay for it.
Many lenders might agree to this as long as:
- You have bought it for a fair price
- It is structurally sound
- There are no significant defects.
However, each lender has a different mortgage approval process.
Get a loan
Using a loan is another way to pay for a house at auction.
Private lenders will offer loans for various reasons, including loans for buying property with cash.
Some banks offer this, too – albeit at relatively high interest rates. Bridging loans are a typical example.
Equity release
Equity release is an option if you have another property that you can utilise for this purpose.
It allows you to unlock some of the equity in that existing house and use it to pay for the remainder of the auctioned property.
Peer-to-peer lending
Peer-to-peer lending and crowdfunding are also worth exploring, although this can be difficult if you’re trying to raise huge amounts.
Can I buy a house at auction without having the deposit available?
You’ll likely need help to do this. Almost all auction companies will require at least a 10% deposit on the day.
This shows you are a serious buyer committed to paying for the house.
This is because an exchange of contracts will take place on the day, too. Check the terms of the auction house you’re using.
Do I need proof of the entire funds on auction day itself?
Not usually. You will need to pay a deposit on the day.
But you won’t typically need to immediately demonstrate that you have the rest of the funds.
Beware of pulling out of a sale
In any case, the exchange of contracts occurs on auction day, making the sale legally binding.
This means that even if you fail to produce the remaining funds over the following month, you’re still legally obliged to proceed with the purchase.
In short, the seller can sue you if you withdraw from the sale after this.
Standard practice for taking out a loan
Many people who buy at auction will arrange for the extra money (i.e., taking out a loan) after they know that they’ve succeeded in buying it.
After all, it’s at this point they will know the precise amount they need for the loan.
Do I need to show the source of funds?
Yes, you need to show the source of your funds when bidding at auction.
This is to ensure that you are not breaking any anti-money laundering regulations.
When do you need to provide evidence of source of funds?
When you register at an auction house, most companies tell you to provide details about the source of your funds in advance.
In other cases, you might need to give this on the auction day.
It can vary for each company. Check the terms and conditions of the auction house or ask them directly for guidance.
How do I bid at an auction house?
The actual bidding process takes place over a matter of minutes on auction day.
You can also vote by proxy or telephone with many auction houses. Check whether the auction house you use offers this.
If you attend in person, you’ll usually raise your hand to get the auctioneer’s attention when you want to bid.
But to get to this stage, you usually must register before auction day. The wider auction process takes several weeks.
This might involve providing details about your funds. You will likely also want to view the property you are due to bid on in the days or weeks before the auction.
On auction day, you should arrive with proof of ID and address.
