There is a range of different preparations you should make when setting yourself up to bid on an auction property, including registration (ID + anti-money laundering checks) through to finalising your budget and engaging a solicitor.

In this article, Property Solvers’ Auction House discusses pre-approval for auctions and explains its importance when getting ready to place a bid.

We’ll also discuss the auction finance pre-approval process and the necessary steps to make sure your proverbial “ducks are in a row”.

Auction Bidding Pre-Approval

It goes without saying that bidding at auction means that you are serious about buying the property in question.

Indeed – with traditional (“unconditional”) auctions – contracts are exchanged at the fall of the hammer (or “gavel”).  Failure to proceed will invariably mean heavy financial penalties.

For this reason, the auction house will need to verify that you are a legitimate buyer and in a genuine position to move forward should you win the lot.

By law, therefore, auctioneers will require Anti Money Laundering (AML) checks to be undertaken at the point of registration.

Here at Property Solvers Online Auctions (to broadly summarise), we request the following:

  • A copy of the auction bidder’s passport and/or drivers licence and a utility bill / bank statement (under 3 months old);
  • Should the bidder be acting on a behalf of a third party, both will be required to furnish passport and/or drivers licence identification and a utility bill / bank statement (under 3 months old);
  • Company details (where applicable) including Companies House Number, ownership / shareholder / beneficial owners information.

Auction Bidding Pre-Approval

Note that we (and many other auction houses) undertake these processes remotely.  Should any issues be flagged up (which can sometimes be the case if the buyer is a foreign national or entity, for instance), we can almost always resolve the problem well before the auction bidding window opens.

We often also check that the auction bidders have solicitors in place.

Auction Finance Pre-Approval

Although not a legal requirement, auctioneers (whether in-person or online) will also often ask about your access to funds.  This is to avoid potential issues at the fall of the gavel.

Unless you plan to buy with 100% cash, it’s therefore always wise to have your auction finance pre-approval documentation ready. This is usually in the form of a bridging or mortgage finance agreement.

Auction Bridging Finance Pre-Approval

Whilst the pay rates are at least 4 to 5 times higher than mortgages, the relative ease of organising bridging finance makes it a popular choice amongst auction buyers.

It’s well worth organising these arrangements well before the auctioneer’s set bidding window.  Remember that the auction bridging finance providers will still want to undertake a series of identification, credit and securitisation checks before pre-approval.

Extracted from the Property Solvers Auction Finance Guide, the following flowchart highlights the essential steps:

Flowchart on the Auction Finance Process

Flowchart on the Auction Bidding ProcessFlowchart on the Auction Bidding Process

Can You Get a Mortgage on an Auction Property?

It’s worth noting, first and foremost, that it’s usually possible to get a mortgage for auction property – although not always.

Certain types of building are far more difficult to match to a suitable loan product.

You’re more likely to find “niche” lots on sale at in-person auction houses. If you have your heart set on one of these, you may need to find a different source of funding. This is because mortgage lenders may not be willing to pay out for a property of that kind.

However, it is becoming more and more common for buyers to get a mortgage on auction property.

How to Get a Mortgage for Auction Property

So, how do you get a mortgage for auction property?

This process is fairly similar to applying for finance when buying via an estate agent. You’ll need to undergo the same financial and credit history checks in order to be pre-approved.

However, it’s worth noting that once you’ve placed the winning bid – and once it has been accepted and the auction has ended – you will be legally contracted to make the relevant payments and commit to the purchase.

For this reason, you cannot risk your mortgage falling through.

To secure your position as effectively as possible, you should arrange a viewing of the property well in advance of bidding. You should also organise relevant checks and searches. You may also look to get the property valued too – although it can be a difficult with the tight auction deadlines.

A valuation is an absolutely vital resource for your mortgage lenders. It will help them to understand how much you will need to borrow – which, in turn, will enable you to work out how much you should be bidding.

If you end up bidding more than the perceived value of the property, and therefore more than your mortgage will cover, you will be legally obliged to make up the difference.

Speak to Our Auction Finance / Mortgage Advisors

Please fill out the form below and a mortgage advisor from our partners at DNA Financial Solutions will be in touch for a no-obligation chat:

DNA Auction Finance Brokers

Can I Bid at Auction Without Pre-Approval?

Pre-approval is not a prerequisite when buying at auction.

First and foremost, many buyers do not require a mortgage to fulfil their purchase contract. If you already have access to all of the funds you need, you won’t need pre-approval.

However, if you plan to take out a mortgage to cover your costs, you really should consider applying to a lender for this agreement. You can do this either directly or via a mortgage broker.

When selecting your broker and/or lender, look for organisations that have a good track record of lending to auction buyers.

Whether or not you are using a mortgage to buy your auction property, you will usually need to pay the required deposit up front. This means that you’ll probably need to have access to funds of at least this amount in advance. For this reason, you shouldn’t rely on your mortgage for this purpose.

Be sure to check all small print on your pre-approval before you bid. If there is any chance that your mortgage will fall through, you could find yourself in hot water legally if things don’t work out.

For further advice or information regarding property purchase or sale, get in touch with the Property Solvers Auctions team today. We’re open 24/7!