Buying Bargains: A Guide To Auction Houses In The UK Property Market
Property auctions offer a distinctive channel for buyers and investors to purchase UK real estate. By understanding how auction processes work and taking key steps to prepare, participants can capitalise on undervalued properties and unique offerings not available on the mainstream market. This guide explains everything you need to know about successfully buying property at auction in the UK.
Overview of UK Auction Houses
Hundreds of residential and commercial property auction houses operate across the UK providing regulated bidding platforms. Leading firms include Allsop, Barnard Marcus, Savills, Clive Emson and McHugh & Co. Auctions facilitate deals ranging from £20,000 for first-time buyer homes to multimillion-pound commercial investments.
While procedures vary, the main auction formats are:
- Live in-room auctions – Traditional live events with in-person bidding.
- Online auctions – Bidders participate remotely via internet platforms.
- Modern method auctions – Hybrid model combining online aspects with accelerated processes.
- Sealed bid auctions – Bidders submit written bids without competing against others in real time. The highest bidder wins.
Each format brings pros and cons around convenience, transparency and bidding strategy.
$500 Million Annual UK property sold via auction as of 2022. Represents over 15,000 unique properties.
Benefits of Buying at Auction
For property buyers, auction purchase benefits include:
- Value deals – Properties often sell below market rates.
- Wider selection – Auctions list unique and niche properties not available elsewhere.
- Investment stock – Many lots ideal for renovation or Buy-to-Let.
- Shorter purchasing – Can complete deals within 20-28 days after winning a bid.
- Reduced gazumping risk – Binding contracts protect winning bidders.
- Mortgageability – Increasing number of lots available with financing.
For motivated or specialist buyers, auctions provide accessible opportunities.
Risks of Buying at Auction
However, the model also comes with risks requiring mitigation:
- Limited due diligence time – Inspections are only possible shortly before the auction date.
- Unknown competition – Harder to anticipate rival bidders compared to private sales.
- Conditional sales – Not all lots are sold outright. Some require post-auction negotiation.
- Financing issues – Properties are often excluded from traditional mortgages.
- Hidden problems – Limited testing means undisclosed defects possible.
- Bidding experience needed – Novices can overpay if swept up in an auction environment.
Proper preparation counters these factors.
Researching Auction Catalogues
Catalogues list properties scheduled for upcoming auctions. Typical details include:
- Photographs – But externally only. Internals are usually not shown.
- Floorplans – Outlining overall dimensions.
- Location maps – Depicting general area, not necessarily specific house.
- Lot descriptions – Property type, size, facilities etc. But minimal condition details.
- Legal packs – Confirming title, ownership, and planning permissions.
- Reserve prices – The minimum bids sellers will accept. Unpublished initially.
- Viewing dates – Narrow windows to inspect before auction day.
Catalogues provide a baseline for filtering interesting lots.
Inspecting Properties Before Bidding
Given limited catalogue insights, in-person inspections are essential:
- Attend all available viewing slots for shortlisted properties. Avoid missing opportunities.
- Take comprehensive notes and photographs recording condition.
- Speak to in-situ tenants for maintenance insights if tenanted.
- Ask the auctioneer questions about renovations needed or permitted.
- Verify measurements against floorplans.
- Commission building surveys for serious lots to quantify the work required.
On-site experience reveals unseen issues and costs.
Verifying Legal Documentation
Secure the legal pack to confirm ownership and obligations:
- Review title deeds, lease terms, planning permissions, and restrictions.
- Check for upcoming lease expiries requiring renewal.
- Clarify building regulations if planning to renovate.
- Confirm any access rights like shared driveways.
- Validate there are no disputes, debts or disputes attached to the property.
- Inspect records for clues on previous sale prices.
Legal work protects against future issues or costs.
Understanding Financing Limitations
Mortgage financing is harder to secure at auction:
- Many lenders shy away from auction properties.
- Specialist auction mortgage providers fill the gap but at higher interest rates.
- Lenders scrutinise property conditions requiring surveys.
- Limited loan-to-values offered – expect a maximum of 60-70% LTVs.
- Expect quicker debt servicing proof – accounts, references, credit checks.
- Repayment terms are often shorter – 10 years instead of 25 years.
Arrange financing ahead of bidding to guarantee funds availability.
Setting Bidding Limits
To avoid overpaying in the heat of the moment, set limits:
- Research values for comparable local non-auction property sales to benchmark.
- Factor in needed renovations based on inspection findings.
- Budget for hidden contingencies – 15% minimum.
- Account for post-purchase costs – taxes, fees, refurbishment.
- Consider ongoing costs – mortgage payments, maintenance etc.
- Ensure enough profit margin remains post-work for the project to be worthwhile.
Stick ruthlessly to limits in the bidding war.
Managing Post-Auction Processes
After winning the bid, remain diligent:
- Submit purchase deposit (typically 10%) immediately.
- Begin mortgage application ASAP if not pre-approved.
- Start the conveyancing process. Many auction houses in UK have panel solicitors.
- Ensure insurance is in place during transactions.
- Plan and coordinate renovations/repairs ready. Appoint builders.
- Liaise with tenants if tenanted. Serve valid Section 21 notices if needed.
Meticulous post-auction management ensures smooth transactions and development progress.
Avoiding Common Auction Pitfalls
Steer clear of these common newcomer mistakes:
- Believing listed guide prices represent true value. Most properties sell above guide.
- Assuming low guide equals bargain. Could indicate commercial use restrictions or major works needed.
- Neglecting due diligence – legal packs and surveyor reports are obligatory.
- Waiving inspection visits to maximize convenience. Visual touchpoints are invaluable.
- Seeing auctions as quick flipping opportunities. Many purchases require medium-term investment to unlock value.
- Relying on estate agent estimates. Their valuations are often optimistic to generate bidding.
- Becoming swept up in bidding drama. Adrenaline can eclipse rational calculations.
Level-headed preparation prevents costly misjudgements.
Property auctions enable access to niche listing opportunities not available on the general market. However, exploiting their unique offerings without overpaying or encountering nasty surprises requires diligent legal research, in-person inspections and bidding discipline. Meticulous preparation and clear-eyed realistic expectations allow buyers to tap into undervalued deals and hidden investment potential at auction. While requiring expertise, embracing the distinct auction processes offers motivated purchasers lucrative possibilities beyond typical property channels.