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Mortgaging Against a Repossession Property Purchase

Buying repossession properties can be an amazing opportunity to secure a residence below market price. Here we work through how a mortgage might function and how the status of the property impacts your mortgage application.

Mortgaging Against a Repossession Property Purchase

Repossessed properties can be very affordable, often popular with investors, auction buyers, and homebuyers looking for an immediate purchase.

In this guide, the business finance broker team has summarised the answers to the most common questions we get asked about buying and mortgaging, a repossession property.

For more assistance and independent advice, give us a call on 0330 304 3040, or email at [email protected].

Where are Repossessed Properties Usually Sold?

A repossession property is a home that has been claimed by a lender since the original owner has failed to pay their mortgage.

Such a property is often cheap because the lender will want to sell it as quickly as possible to claw back the money they have lost and the costs of the process.

You can find repossession sales through an estate agent, or through an auction house - which is usually the most expedited option available.

How to Mortgages for Repossession Auctions Work?

Auctions can be a speedy way to sell a property, and you can browse listings around a month before the date of the auction - in that time, you can usually book a viewing and get an offer to lend in place.

Buyers will often use bridging finance, which is much quicker to arrange than a typical mortgage and can be refinanced with a lower cost lending option once the purchase has been completed.

What Happens with a Repossessed Home Being Sold by an Estate Agent?

Estate agents will sometimes take on managing a repossession property sale on behalf of the bank or institution that owns it.

However, such sales are often not marketed publically, and so you might find such properties by calling an agent and asking what they have on their books.

Is a Repossessed House a Cheap Property Investment?

Sometimes, but not always! It is normal for a repossessed home to be sold at around 20% to 30% less than you'd expect to pay at regular market prices.

The lender will be less concerned with getting the best price for the property, more interested in selling it quickly and ensuring the value achieved covers their losses.

As a downside, that means that a bank will be highly unlikely to spend anything on improving the property, preparing it for sale or dealing with any repair issues.

A positive is that you're buying directly from a bank or lender, so there isn't any property chain to deal with.

Are there any Disadvantages of Buying a Repossession Property?

There are some potential pitfalls to bear in mind:

  • The home is more likely to be in bad condition.
  • You need finances in place quickly to buy at auction.
  • It's vital to understand all of the costs involved.

As we have discovered, a lender won't be worried about investing in the property condition, so it is very common for a repossession property to be in a state of disrepair. Therefore, you will probably need to budget for redecorating and renovations.

Buy to let repossessions can also be problematic if there were tenants in the property who are still in situ, or still have access. Generally, you'd expect tenancy issues to have been resolved before a buy to let repossession is resold, and should clarify the situation with the agent or seller before completing.

Financing at auction moves quickly, and you need to have an agreement in principle to have enough time to pay the balance - due 28 days after the auction.

You also need an immediate deposit, and to be aware of auction fees and commissions.

While speed is the priority, an agent may also accept offers after accepting yours, and if they can get a higher price for their client, there is the potential for gazumping. That could mean losing arrangement fees and legal costs, without ending up with the property.

Costs can include surveys, reconnecting utilities, and repair works, so a full structural survey is vital to know what you're getting into.

Is Buying a Repossessed Property Different from a Normal Sale?

Yes, it is somewhat different, and you need to understand the process, as it can be reasonably complex.

If you make an offer on a repossession sale that is accepted, this must be publically advertised in the local media with an open invitation for competing bids.

Auction sales usually require at least a 10% immediate deposit, with the full balance payable within 28 days, so having your financing arranged in advance is crucial as this is not enough time to find a mortgage and complete the application process.

If I Buy a Repossession Property will that Impact my Credit Score?

It shouldn't, because if the previous owner has serious credit issues, these relate to them as an individual, and do not transfer to you as the new owner of the home.

However, it can be a concern as if creditors have not been informed, they might send correspondence, or even bailiffs, to a repossessed home in error.

Therefore we'd advise checking your credit history carefully and regularly, and raising a query on anything that looks out of place.

Correspondence should be returned to the sender, or if there are contact details, you should inform debt collectors that the addressee no longer lives there.

How Easy is it to Get a Mortgage on a Repossession Home?

There isn't anything more demanding about the mortgage application process, and a lender won't apply any different terms or policies. They will look at the same criteria before making an offer to lend, such as:

  • Your income and whether you can afford the repayments.
  • How much deposit you can put forward.
  • Whether you have a clean credit history.

Are There Issues when Buying a Repossessed Flat or Apartment?

It is also wise to ask your solicitor to run a check for any unpaid charges against maintenance costs left behind by the previous tenant.

However, the process is the same, and there aren't any specific issues with buying a repossessed flat as opposed to a repossessed house.

How do the Repossession Purchase Rules Differ Across the UK?

The rules and process are slightly different in the various UK regions:

  • Scottish repossession properties cannot be gazumped once an offer has been accepted.
  • Repossessions in Northern Ireland follow the same process as in England, and therefore there is a risk of gazumping.

Professional Advice on Mortgages for Repossessed Properties

The best way to find a competitive mortgage for a repossession purchase is to work with an independent, whole-of-market broker who can assess your circumstances and recommend the most suitable lenders to apply to.

Whether you need fast financing for a repossession auction or wish to compare the most competitive rates on the market, we can help. Give the team a call on 0330 304 3040, or email us at [email protected].

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