The number of houses reclaimed by county court bailiffs grew again in the first quarter of 2024 as higher mortgage rates and inflation strained household budgets.
Mortgage possession actions have continued their gradual upward trend with mortgage claims at their highest since 2019.
According to data from the Ministry of Justice, a total of 759 homes were taken into possession between January and March 2024, which is a 4% increase compared to the same period in the previous year.
Once a mortgage lender has repossessed (taken back) a property it then has to sell it.
So if you’re in the market for a new place to call home, purchasing a repossessed property could be just what you need to save money and get the keys in a matter of weeks.
Think about it: lenders are often looking for a quick sale, and buying a repossessed house or flat could save you thousands of pounds in the process. You can choose to make the purchase through an estate agent or at an auction, but whichever route you take, you’ll be able to move into a new home fast.
Now, you might be wondering how to go about buying a repossessed property – and what factors to keep in mind. That’s where we come in. In this comprehensive guide, we’ll take you through everything you need to know before making an offer on a repossessed property.
What is Repossession?
Repossession is a process that allows lenders to take back a property from borrowers who have defaulted on their mortgage payments.
When a borrower stops paying and defaults on their mortgage, the lender has the legal right to repossess the home in order to recoup their debt.
The process of repossession typically begins when a borrower fails to make their repayments for an extended period of time (usually 90 days). The lender will then contact the borrower and inform them that they are in default and must make arrangements to pay off the debt or face repossession.
If the borrower does not respond or cannot make payment arrangements, the lender will legally repossess the house and evict the borrowers.
Once the property has been sold, the lender will deduct any money owed to them, including; the mortgage debt, outstanding interest, legal fees and other related costs. Should there be any money left after this then it will be paid to the owners.
Repossession can have serious consequences for borrowers, including damage to credit scores, difficulty obtaining future loans, and even legal action if necessary.
What is a repossessed property?
A repossessed property is essentially a home that has been taken back by the mortgage lender due to non-payment or non-compliance with the mortgage agreement.
Once a lender has taken ownership of a property, it’s up to them to make sure it’s sold quickly to recover the outstanding debt and any additional costs.
But for the buyer (you), it can be an excellent opportunity to find a good deal.
It’s common for lenders to sell these properties through a property auction as it provides a quick and simple process.
How do you buy a repossessed house?
When a property is repossessed, the lenders aim to recover their losses as swiftly as possible, and they frequently do this by selling the property at auction to the highest bidder.
One advantage of selling the property at auction is that it can be completed in less than a month, which is particularly attractive to lenders looking for a quick sale. Purchasing a property at auction differs significantly from purchasing a repossessed house through an estate agent, and it is important to understand these differences in detail.
For example, auction purchases are completed much faster than estate agent transactions and you need to have had a mortgage approved and legal work completed prior to auction day.
Buying a repossessed house at auction
Purchasing a repossessed property at auction can be a speedy and cost-effective way of securing a home.
Generally advertised for around one month before the auction, you should use this time to view the property, instruct a solicitor and arrange financing. During this period, your focus should be on gathering information about the property to ensure you make an informed decision.
A bridging loan may be used by some to fund the purchase of a repossessed home at auction as it’s much faster to arrange than a traditional mortgage.
Once the property has been bought it’s then possible to remortgage and pay off the bridging loan. While this is a common situation, it’s important to know that obtaining a long term mortgage within six months of buying a property can be more difficult due to the ‘six month mortgage rule’.
If you’re lucky enough to outbid everyone, you must hand over 10% of the agreed price on the day of the auction. This is your exchange deposit.
Be aware that once the hammer falls, both you and the seller are legally obligated to complete the sale, which needs to be finalised within 28 days.
Buying a repossessed house through an estate agent
While estate agents typically don’t advertise these, there are agents who have a list of repossessed properties that certain lenders are looking to sell.
When a property has been repossessed by lenders, they often seek the assistance of estate agents to make a sale.
However, due to the negative associations with repossession, estate agents don’t handle the marketing of these properties in the same way as others. Instead, they have their own list of potential buyers and investors, whom they usually contact first to explore their interest in a property.
If you’re looking to purchase a repossessed property, it will be worthwhile contacting several local estate agents to inquire about any properties they may be handling. By doing so, you may gain access to a wider range of properties and increase your chances of finding a great deal.
CONTACT A MORTGAGE BROKER
If you are ready to take the next step then we can put you in touch with a fully qualified independent mortgage broker.
How much time does it take to purchase a repossessed house?
Purchasing a repossessed house can be a great opportunity to own a property with minimal complications. If you decide to go down the auction route, the process of buying it is preset and generally takes around 28 days.
That’s only four weeks!
It’s a shorter turnaround time than a traditional property purchase, partly because there’s no chain when buying via an auction.
The best part is that it’s often a far less complicated transaction, which frees you from the hassle of dealing with a lengthy legal or conveyancing process. But you do need to be organised and have your borrowing approved in advance.
Buying a repossessed house is similar to buying any other property if marketed by an estate agent. However, the conveyancing process may be a bit faster, as completion is often necessary within 28 days of offer acceptance. Yet, even after your offer is accepted, it’s not uncommon to be gazumped, and outbid by someone else.
One of the biggest downsides of purchasing a repossessed property is that there may not be much information available about the home’s history, so carrying out a thorough conveyancing process along with a survey is absolutely critical before you commit.
There may be some issues to consider once you complete the transaction. For instance, services are often disconnected, so you will need to arrange any re-connections. Nevertheless, if you’re willing to deal with any of the above challenges, buying a repossessed property could be an excellent investment opportunity.
Will it be difficult to get a mortgage?
Getting a mortgage on a repossession property may not be as daunting as you think.
In fact, the process is very similar to that of a standard property. The only difference to consider is if you require bridging finance to quickly secure your chosen property. This may be the case if you plan on purchasing your property through an auction.
The fact that the home was repossessed should not negatively impact your ability to be approved for a mortgage.
Mortgage applications are primarily assessed on the borrower’s ability to make the monthly repayments, in addition to the size of the deposit they can put down and their credit rating.
So, if you’ve got those three things in check, you’re good to go! Don’t worry; you can still secure that dream pad you’ve had your eye on, regardless if the property was repossessed.
Obviously your lender will want a surveyor to visit the property to provide a mortgage valuation. It’s unlikely that the purchase price will be queried, although this is not unheard of, but there may be comments about the condition as some houses will have been neglected by the previous owner.
While a property auction is a simple and known process for a lender to offload a house, it’s also the place where the more run-down properties will be marketed. Some of these might just need some TLC, but there will be others that need gutting and starting again. It would not be possible to sell these via an estate agent’s window.
If you’re still feeling a bit unsure and in need of further guidance on obtaining a mortgage on a repossessed property, or on buying property in general, reach out to an independent mortgage broker. They can guide you through the entire process, ensuring that you’ll get the best outcome for your specific situation.
Some quick pros and cons
If you’re considering a quick property deal, a repossessed house can be an attractive option in terms of a cost-saving investment. However, before deciding to go for one, it’s vital to consider the advantages and disadvantages associated with buying repossessed properties.
Cost savings
The most significant advantage of buying a repossessed property is the cost savings. These types of properties usually come at a price of 20% – 30% below their usual market value.
However, it’s worth bearing in mind that there might be some repair work required for bringing the property up to acceptable living standards.
Quick sale
Lenders are usually desperate to sell these properties to limit their losses, so you can potentially acquire a repossessed house quickly.
Auction houses are often used by lenders as they allow for a fast and efficient way to sell off properties.
No property chain
Another advantage of buying a repossessed property is that there is no waiting for the sale of the properties in the chain.
As you will be buying the house directly from the bank, you won’t face any difficulties with a property chain and people moving house, that might lead to delays in the transaction.
Condition
One of the significant disadvantages of buying repossessed properties is that they can usually be in poor condition. You should always view the property in person to identify any damage or disrepair, which will give you an idea of how much investment is required to bring it up to standard.
These properties can have all kinds of issues, from minor missing fixtures and fittings to major refurbishment.
Other bidders
It’s worth noting that repossessed properties can attract fierce competition, leading to bidding wars.
The possibility of a good bargain and a faster sale means that repossessed properties are often in high demand, so it’s recommended that you consider more than one option and set yourself a budget to avoid spending more than you intended to.
Extra costs
It’s common to find that utility services are disconnected and you’ll be left to bear the cost of reinstating them.
There may also be quite a lot of work needed for the basic amenities, such as getting the bathroom and kitchen in proper order.
A standard mortgage lender will need a property to be weatherproof, with a working bathroom and kitchen before providing a mortgage. If not, the property will be classed as uninhabitable.
Gazumping
In most cases, the lender will ask estate agents to keep the property on the market even if a sale price is agreed upon, to see if there might be higher offers.
Lenders usually have no reservations about accepting other offers, even if you’ve already spent money on legal fees or a valuation. This could give another buyer the opportunity to gazump you with a higher bid.
Although this could happen if you buy a repossessed house at an auction, it is less frequent since auction houses have penalties for withdrawing from the sale after bidding has ended.
Will my credit score be affected?
Buying a repossessed property shouldn’t have any impact on your own credit rating.
Any debts associated with the repossession will be recorded against the previous owners, rather than your own credit history.
However, it is also worth noting that the previous owners are likely to have other outstanding debts registered to the address apart from their mortgage.
While this situation shouldn’t cause you unnecessary worry, it can be beneficial to monitor your credit report closely for the first few months after you purchase the property.
If you spot anything on your report that seems incorrect or that has been mistakenly associated with you, speak to the finance company or credit reference agency to get things put right.
Additionally, should you receive any post addressed to the previous owners, it is important to return it unopened to the sender, clearly indicating that the intended recipients are “not known at this address”.
If you happen to receive any communication from a debt collection them and explain that the people they are chasing no longer reside at the address. They can then update their records accordingly.
How can a mortgage broker help?
A good independent mortgage broker will have access to over 100 lenders, meaning they can compare deals from across the wider market and find one that is tailored to your individual circumstances.
They will also be able to advise on any special conditions or restrictions that may apply when taking out a mortgage on a repossessed house.
In addition, a mortgage broker can provide guidance and support throughout the entire process, from researching different options to submitting your application and negotiating with lenders.
This means you don’t have to worry about dealing with paperwork or making sure everything is in order – your broker will take care of it all for you.
They will know the right lenders to approach if you are self-employed, need a CIS mortgage or perhaps you have some bad credit. Occasionally the property itself may need a specialist lender. For example; concrete houses, steel framed houses and ex-council houses, your broker will explain the reasons for this.
Overall, using a qualified and experienced mortgage broker when looking for a loan on a repossessed house is essential if you want to get the best deal possible. With their expertise and knowledge of the market, they can help make sure you get the right product at the right price.
If you’re looking to invest in a property or want to jump back onto the property ladder, the prospect of purchasing a repossessed house can seem like a great deal. With potentially significant financial savings and a quicker purchase process, you may be drawn to the idea.
However, it’s important to take the time to make a well-informed decision and avoid rushing into anything without proper consideration. If you need a mortgage to purchase the property, you may face additional challenges. The good news is that there are resources available to help you navigate the process successfully.
By working with independent advisers, you can gain access to a variety of lenders and mortgage products to help you find the best option for your unique needs. Whether you’re a first-time buyer, or even hoping to secure finance for a UK property while living abroad, there are professionals who can guide you through the process.
With careful consideration and expert advice at your fingertips, you’ll be well on your way to making a smart, financially-sound investment in no time.
Just a small selection
of the 120 banks, building societies and specialist lenders that you could have access to.
Only an independent mortgage broker has the ability to search the whole of the market to get the best mortgage for their clients and their individual situation.
How to finance an auction property purchase
Financing a property purchase at auction can be tricky. There are many things to consider, and it’s important to be prepared before the bidding process begins.
So if you’re thinking of buying property at auction, read on for advice on how to get your finances in order!
