Property auctions can be one of the quickest ways for a landlord to buy, and sometimes one of the best value. Properties are often sold below market value. There is no long chain, and once the hammer falls the deal is legally binding.
That speed and certainty work in both directions. At a traditional auction you commit to buying the moment your bid wins. You are then expected to complete within weeks, whether or not your finance is in place. This guide explains how auctions work, how to prepare, and how to fund a purchase without putting your deposit at risk.
Traditional auction vs modern method of auction
Before you bid, check which type of auction the property is being sold through. The timescales and costs are very different.
| Traditional (unconditional) auction | Modern method of auction (conditional) | |
| When you’re committed | Contracts exchange when the hammer falls | You pay a non-refundable reservation fee, and the property is reserved for you |
| Deposit on the day | Typically 10% of the price | No deposit at exchange; the reservation fee is paid instead |
| Time to complete | Usually 28 days, sometimes 20 | Usually 28 days to exchange, then about 28 days to complete |
| Extra buyer costs | Buyer’s premium or admin fee | Reservation fee, often several thousand pounds and usually not deducted from the price |
| Best suited to | Cash buyers and bridging finance | Buyers using a mortgage |
The modern method gives you more time to arrange a buy-to-let mortgage. The trade-off is that the reservation fee adds to your total cost, and you lose it if you pull out.
Before the auction: do your homework
At auction, most of the risk sits with you before the auction day, not after it. The lots that sell cheaply are often the ones with problems, so treat preparation as part of the price.
- Read the legal pack. Have a conveyancer review it before you bid. It contains the title, searches, any leases and the special conditions of sale. Look out for extra fees passed to the buyer, such as the seller’s legal costs or search fees. Also check for short leases, restrictive covenants and missing planning or Building Regulations sign-off.
- View the property. Go to at least one viewing, and take a builder if you can. Check the condition and any existing tenancy.
- Get a survey. A RICS Level 2 or Level 3 survey costs money up front, but it can reveal structural problems, damp, Japanese knotweed or non-standard construction. Each of those can affect both the price and your ability to get a mortgage.
- Check it will let and lend. Confirm local rents, licensing requirements and the EPC rating. A property below EPC E cannot legally be let until it is improved.
- Set a hard ceiling. The guide price is not the reserve, which is usually higher and kept confidential. Work out your maximum bid. Include the buyer’s premium, stamp duty with the 5% surcharge, legal fees, refurbishment costs and finance costs, and do not go above that figure.
Financing an auction purchase
Arrange your finance before the auction, not after. If you win at a traditional auction and cannot complete on time, you can lose your 10% deposit. The seller may also pursue you for their losses.
Bridging finance is the most common solution. Bridging loans can often complete within the 28-day window. They can also be secured on properties a mortgage lender won’t accept, such as one with no working kitchen. Many landlords then refinance onto a buy-to-let mortgage once the property is refurbished and let. Our guide to bridging finance covers the costs and exit routes.
A buy-to-let mortgage can work for a modern method auction, or for a traditional auction with a longer completion period. Arrange a decision in principle in advance, and choose a lender that can value and offer quickly.
Two points to plan for:
- The six-month rule. Some lenders won’t lend on a property owned for less than six months, or will lend only on the purchase price rather than the new value. Choose your refinance lender before you buy.
- Valuation risk. If the lender’s valuer values the property below your winning bid, you must make up the difference from your own funds.
On the day and after the hammer
Most auctions now run online or by phone as well as in the room. You’ll usually need to register in advance, pass ID and anti-money-laundering checks, and show proof of funds for the deposit.
On the day, check the addendum. This is a list of late changes to lots, and it forms part of the contract even if you haven’t read it. Stick to your ceiling, because auction-room momentum is how buyers overpay.
If you win a traditional auction:
- You pay the deposit and the buyer’s premium straight away, usually by bank transfer.
- You’re responsible for insuring the building from exchange, which is that same day.
- Your conveyancer and lender work to the completion date in the contract. If you miss it, you face penalty interest and could lose your deposit.
If a lot doesn’t sell, you may be able to make an offer after the auction, often on the same contract terms.
Pros, cons and common mistakes
| Advantages | Disadvantages |
| Potential to buy below market value | Binding commitment with tight deadlines |
| Fast, certain transactions with no chains | Costs before bidding, such as legal pack review and survey, with no guarantee of winning |
| Access to refurbishment projects and unusual properties | Extra fees on top of the hammer price |
| A transparent, competitive process | Properties are often sold with problems |
The mistakes we see most often are avoidable:
- Bidding without having the legal pack reviewed
- Treating the guide price as the likely sale price
- Leaving finance until after the auction
- Underestimating refurbishment costs, or how long the property will be empty
- Forgetting the buyer’s premium, the seller’s costs and stamp duty when setting a maximum bid
Frequently asked questions
Can I get a mortgage to buy at auction? Yes, but the timing is the challenge. A buy-to-let mortgage is more realistic with a modern method of auction, where you’ll normally have around eight weeks in total. For traditional auctions, most landlords use bridging finance and refinance later.
How much deposit do I need on the day? At a traditional auction, typically 10% of the hammer price, plus the buyer’s premium. Some auctions set a minimum deposit, so check the conditions of sale.
What’s the difference between the guide price and the reserve? The guide price is an indication intended to attract bidders. The reserve is the confidential minimum the seller will accept. It is usually above the guide and can be up to 10% higher.
What happens if I can’t complete in time? You’re in breach of contract. You can lose your deposit, be charged interest, and be liable for any shortfall if the seller sells again for less.
Do I pay stamp duty on an auction purchase? Yes, on the same basis as any other purchase. Landlords buying an additional property pay the 5% higher-rates surcharge.
Can I buy at auction through a limited company? Yes. Register the company as the bidder, and make sure your finance is arranged in the company’s name.
Is buying at auction a good idea for a first-time landlord? It can be, as long as you prepare properly. Start with a property that needs only light work, get professional advice on the legal pack, and arrange finance before you bid.
Can I make an offer before the auction? Often, yes. Many sellers will consider pre-auction offers, usually on the same terms as the auction contract.
At 3mc, we have a team of expert advisers who can discuss all your mortgage requirements. If you would like to discuss your options, give the 3mc team a call on 0161 962 7800.
All calls are recorded for training and monitoring purposes. 3mc for intermediaries only.
*Your home may be repossessed if you do not keep up repayments on your mortgage. 3mc (UK) Ltd is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register https://register.fca.org.uk/s/ under reference 302992. Please note: The FCA do not regulate Business Buy to Let Mortgages.