Buying at auction: a way to a bargain or a moneypit?

The catalogues are awash with properties, but it still pays for buyers to be on their guard.

Auction rooms have traditionally been the crucible of the British property market. It's where repossessed properties are sold at a knock-down price, and where cash-rich buyers look to snap up a bargain. And, at the moment, they are busy places.

A by-product of the recession has been the soaring number of repossessions, with 12,800 recorded in the first quarter of this year, compared with just 8,500 in the first quarter of 2008, according to the Council of Mortgage Lenders. Many of these repossessed properties will end up with the auction-houses, listed by lenders hoping for a quick sale. We know supply is plentiful out there – but what about demand?

Interestingly, the total number of lots, both residential and commercial, sold in April this year at auction property company the Essential Information Group (EIG), rose by 13 per cent in comparison with figures for April 2008. EIG also saw the number of repossessions coming to auction accelerate from less than 200 a quarter offered on average in 2004, to 2,665 in the fourth quarter of 2008. Similarly, Savills' last residential auction in May outperformed previous auctions this year – with 88 per cent of the lots selling, at a total value of £15.7m.

However, buyers hoping to snap up the best auction bargains may find that prices are still beyond them. "Auction prices will not now get any lower, and, in fact, some lots seriously outperformed expectations. Our view is that we are at the bottom," says Paul Mooney, director of Savills Auctions.

Despite this, opportunities remain for big savings at auction. Many sellers will be looking to shift their homes quickly, so properties can often go under the hammer for far less than they would if going through an estate agent. It can also be a fairly speedy process, with the sale sealed on the day and no long, complicated chains which can fall through at the last minute. "The first thing to note is that every seller at auction is motivated to sell. Also, the properties tend to be unmodernised and in need of some work so it allows the buyers to put their stamp on them and make some money," says David Sandeman, founder of EIG.

However, buying a property at auction can be a more complex procedure than expected. A great deal of groundwork has to be laid before auction day and anyone unprepared could quickly become unstuck. "Auctions are sometimes seen by first-time buyers as a chance to get a bargain, but if you've got no experience it can be risky. There are a lot of hoops to jump through with any house purchase and doubly so for anyone who has never bought at auction before," says David Hollingworth from mortgage broker London & Country.

One of the biggest drawbacks to buying at auction is that the timeframe is extremely tight and a great deal has to be organised. Once auction dates have been put in the diary, potential bidders should get a copy of the the auction catalogue and start scanning for suitable properties. They can then get in touch with the auction house to arrange a viewing of the properties they like the look of. It's also useful to chat to local estate agents for more information on the surrounding area, and to take a look at other house prices for similar properties.

The auction house is duty bound to make available the properties' title deeds and you would be best advised to get a solicitor to read these through before putting in a bid. The auction house's sales information should also highlight any other conditions to the sale, for example, some vendors may require an earlier completion date.

This can be time consuming and expensive if a solicitor is involved, and may prove fruitless if the bid is unsuccessful. When buying through an estate agent, costs are only incurred after an offer is accepted.

Buyers also need to organise any financing for the sale prior to auction day. "Auction houses are buzzing as potential buyers look to pick up a property bargain, but if you are keen to buy at auction you must get your finance approved, in principle at least, beforehand," says Mr Hollingworth.

Lending criteria is still tight and if you intend to let the property out you will be expected to have a deposit of at least 25 per cent, with the lender providing the rest. In addition, lenders are taking far more care over which buy-to-let investments they lend against. They want the figures to stack up. The mortgage must be covered by the likely rental income, with room to spare. Expect lenders to insist on likely rental income equal to 125 per cent or more of the monthly mortgage costs.

Those hoping to become owner-occupiers through the auction route may be able to obtain a higher loan-to-value mortgage, but this depends very much on their personal circumstances – a good credit history and a well-paid, secure job. But remember, the higher the LTV, the greater the rate of interest charged. What's more, mortgages above the 90 per cent LTV are thin on the ground, hard to obtain and expensive at present.

Obtaining the finance to buy a property at auction should pose no more problems than if buying a home through an estate agent but added difficulties can arise when valuing the property. A chartered surveyor can carry out a homebuyers' report and provide details on the condition and value of the property. "It is worth having a survey done before you bid at auction to ensure there are no hidden nasties which will put the lender off. Many people don't bother with this because there is no guarantee they will successfully bid for the property but this could be an expensive mistake," says Melanie Bien from mortgage broker Savills Private Finance. However, discrepancies between the lender's valuation and the price paid on the day are common, so bidders must be confident that they can cover any shortfall. The temptation to overbid could leave some bidders in a dire situation if they are unable to borrow any more money.

Even on the day of the auction, the property details can change, so it is vital to ask if an "addendum sheet" has been issued which contains last-minute amendments or additional information relating to the lots. It will be presumed that all bidders are aware of any changes made, so check this meticulously.

Once a sale has been secured, yet more work must be done and again, timing can be an issue. A deposit of 10 per cent of the purchase price must be put down on the day of the auction, after which winning bidders have only a short time to complete the sale, or they risk losing their deposit. A good mortgage broker could prove invaluable in chasing up lenders and ensuring funding is in place before the deadline. "Once the hammer falls, you're legally committed to that purchase and completion is likely to be expected within 28 days," says Mr Hollingworth.

Above all, bidders should take care not to get carried away. Auctions can be intimidating but bidders must set a maximum bid beforehand and keep that figure in mind. It's a good idea, Savills says, to attend a few auctions before taking the plunge, to get used to the often frenzied atmosphere.

Tips for buying at auction

Plan your purchase and don't get carried away

Find an auction: Ask to be put on to auction-house mailing lists for upcoming auction dates. Also, subscribe to an auction website such as

Get some experience: Anyone nervous about bidding should attend at least one auction as an observer first.

Do your research: Approach estate agents before bidding to find out what similar properties in the area have gone for. Get a survey done.

Get your finances in order: Secure a mortgage offer first; make sure the lender can complete your application within three weeks of the sale.

Factor in extra costs: Don't forget stamp duty and auctioneer fees of up to 1.5 per cent of the sale price.

Last-minute checks: On auction day, call ahead to check the addendum sheet for last-minute changes or additions.

Compare with the Independent: See how much you could save by switching credit cards. Compare now

Raheem Sterling and Luis Suarez celebrate during Liverpool's game with Norwich
sport Another hurdle is out of the way for Brendan Rodgers' side
Arts & Entertainment
The original design with Charles' face clearly visible, which is on display around the capital
arts + ents The ad shows Prince Charles attired for his coronation in a crown and fur mantle with his mouth covered by a criss-cross of white duct tape
Steven Gerrard had to be talked into adopting a deeper role by his manager, Brendan Rodgers
sport LIVEFollow the latest news and scores from today's Premier League as Liverpool make a blistering start against Norwich
People White House officials refuse to make comment on 275,000 signatures that want Justin Bieber's US visa revoked
Sir Cliff Richard is to release his hundredth album at age 72
PEOPLESir Cliff Richard has used a candid appearance on an Australian talk show to address long-running speculation about his sexuality

Mourinho lost his temper as well as the match
sportLiverpool handed title boost as Sunderland smash manager’s 77-game home league run
The speeding train nearly hit this US politican during a lecture on rail safety
news As the saying goes, you have to practice what you preach
Mercedes Formula One driver Lewis Hamilton of Britain (front) drives ahead of Red Bull Formula One driver Daniel Ricciardo of Australia during the Chinese F1 Grand Prix at the Shanghai International circuit
sport Hamilton captured his third straight Formula One race with ease on Sunday, leading from start to finish to win the Chinese Grand Prix

Arts & Entertainment
Billie Jean King, who won the women’s Wimbledon title in 1967, when the first colour pictures were broadcast
Snow has no plans to step back or reduce his workload
mediaIt's 25 years since Jon Snow first presented Channel 4 News, and his drive shows no sign of diminishing
Life & Style
food + drinkWhat’s not to like?
Clock off: France has had a 35‑hour working week since 1999
voicesThere's no truth to a law banning work emails after 6pm, but that didn’t stop media hysteria
Arts & Entertainment
Maisie Williams of Game of Thrones now
tvMajor roles that grow with their child actors are helping them to steal the show on TV
Arts & Entertainment
Kingdom Tower
Life & Style
Lana Del Rey, Alexa Chung and Cara Delevingne each carry their signature bag
fashionMulberry's decision to go for the super-rich backfired dramatically
Finacial products from our partners
Property search
Have you tried new the Independent Digital Edition iPad app?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    1st Line Helpdesk Engineer Apprentice

    £150.00 per week: QA Apprenticeships: This company has been providing on site ...

    Telesales & Sales Support Apprentice

    £221.25 per week: QA Apprenticeships: This company is a well established Inter...

    Client Relationship Manager - SQL, Python

    £40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...

    **Financial Services Tax**

    £35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...

    Day In a Page

    How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

    How I brokered a peace deal with Robert Mugabe

    Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
    Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

    British Muslims's Happy video attacked as 'sinful'

    The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
    Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

    Michael Williams: Do as I do, not as I pray

    Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
    A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

    A History of the First World War in 100 moments

    A visit to the Front Line by the Prime Minister's wife
    Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

    Jenny Collier: 'Sexism on stand-up circuit should be extinct'

    The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
    Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

    Cannes Film Festival

    Ken Loach and Mike Leigh to fight it out for the Palme d'Or
    The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

    The concept album makes surprise top ten return

    Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
    Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

    Lichen is surprise new ingredient on fine-dining menus

    Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
    10 best baking books

    10 best baking books

    Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
    Jury still out on Manchester City boss Manuel Pellegrini

    Jury still out on Pellegrini

    Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players
    Ben Stokes: 'Punching lockers isn't way forward'

    Ben Stokes: 'Punching lockers isn't way forward'

    The all-rounder has been hailed as future star after Ashes debut but incident in Caribbean added to doubts about discipline. Jon Culley meets a man looking to control his emotions
    Mark Johnston: First £1 million jackpot spurs him on

    Mark Johnston: First £1 million jackpot spurs him on

    The most prize money ever at an All-Weather race day is up for grabs at Lingfield on Friday, and the record-breaking trainer tells Jon Freeman how times have changed
    Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

    Ricky Gervais: 'People are waiting for me to fail'

    As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
    Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

    Mad Men returns for a final fling

    The suits are still sharp, but Don Draper has lost his edge
    Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

    Google finds a lift into space will never get off the ground

    Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit