Can you buy a house at auction with a mortgage?

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“Can you buy a house at auction with a mortgage” is a question I am asked from time to time. The short answer is ‘yes’.

The long answer, however, is more nuanced and requires some explanation.

There is nothing in principle why a lender would not provide a mortgage for a property at auction. It would be vital, though, for you as purchaser to make absolutely sure you have mortgage approval in advance of the auction.

The reason, of course, is because if you are the successful bidder and the property is knocked down to you you must sign the contract, pay the 10% deposit, and complete the sale.

There is no backing out or you run the risk of losing your deposit and being pursued by the auction house for the balance of the purchase price.

So, any conditions in a loan offer which might cause the subsequent withdrawal of the loan offer, or any change in your circumstances (e.g. employment loss or layoff) which might cause this to happen will leave you seriously exposed if you have bought at auction.

Subject to finance clause

An auction contract, remember, is not negotiable and will not permit a ‘subject to finance’ clause as you would normally negotiate in a private treaty (non auction) sale.

Auction properties-a particular type

Auction properties since the Celtic Tiger property crash tend to be a particular type: receiver sales. Auction houses like BidX 1, BR Gibson, IAM Sold, Wilsons, the Leinster Property Auction have been used by receivers and lenders to sell repossessed properties.

Often these properties have certain imperfections and infirmities which might be rectified prior to a private treaty sale but are very much sold as seen in the auction environment. This may lead to the buyer obtaining a bargain, but it may also be a property that is not best suited to satisfying a lender about acceptable title and security.

The contracts tend to be drafted in a particular way having regard to the limited knowledge of the vendor/receiver and are not negotiable.

Buying by private treaty, on the other hand, allows negotiations between the parties and their solicitors and both parties, especially the purchaser, can benefit from this-for example, the insertion of a standard subject to finance clause.

This means that if the finance is withdrawn or any difficulty arises and you are unable to draw down the loan funds which are no longer available the contract is at an end and you will get your deposit back.

What you must do if getting a mortgage for auction

It is imperative that you have a solicitor review the title documents and contracts well in advance of the auction. He may be able to identify any issues a mortgage provider might have with the property.

You must also have your physical inspection carried out by having a structural survey done.

With these two steps covering the physical property, the title, and the contract you will be able to proceed with more confidence with the lender and ensure the required valuation and any other preconditions of the lender are satisfied before going to the auction.

I have written some other blog posts about buying at auction in Ireland:

  1. The nightmare auction purchase
  2. Buying property at auction-a review of a typical auction contract
  3. Buying property from a mortgagee in possession or receiver

What to do now

Go and speak with lenders and mortgage brokers. It is likely that some lenders will not want to know and will not provide a mortgage for an auction property.

It is also likely, however, that you will be able to obtain a mortgage to buy a property at auction provided you carry out your due diligence well in advance and satisfy the lender that they will be getting a sound asset as security for the loan.