Buying or Selling Property at Auction
UK expats who are considering buying property in the UK for investment into the buy to let (BTL) market and those UK expats who already own portfolios of buy to let (BTL) properties should familiarise themselves with the opportunities for both buying property and disposing of property that auction houses can provide.
Over the last decade, property auctions have become widespread and are frequented by an ever growing number of investors with all levels of property buying experience from the raw beginner to the property buying expert. There are now well over 260 property auction houses in the UK so each month will probably see several hundred poperty auctions being held throughout the UK with each auction featuring quite large numbers of properties of all types and price ranges being sold.
For UK expat who only return to the UK for short periods once or twice per year, finding the time to attend property auctions can be difficult. However with the potential bargains that do appear at Property auctions they are well worth the time taken to utilise them. At expatriates.co.uk we hope that the information contained in this guide will be found to be helpful.
Attractions for UK expats to use property auctions
There are many benefits to be gained by UK expats from considering property auctions as a tool for buying and selling property. This is particularly true if buying distressed property for renovation purposes is the intention as there can be real bargains to be had if you are lucky enough to find yourself the only serious bidder. Some of the attractive considerations are shown below to give the UK expat a flavour to how property auctions can be used to their advantage.
- Notice to UK expats of properties being auctioned – Most property auction houses will have a website and brochure where expats living overseas can browse through the properties that will be coming up for sale at the next auction date which is usually about 4 to 6 weeks later. Scheduled dates up and coming auctions are always given well in advance. This usually means that there will be sufficient time between seeing a property for sale and having to bid on it to let you arrange to complete your research on the property prior to bidding.
- Property types to suit the UK expat– Property on offer will usually be very wide and varied and can range from land purchases and land with derelict buildings to tiny flats through to great mansions. Commercial property can also feature strongly with shops, offices and complete and trading businesses being sold.
- Convenience for UK expats – The fact that all listed properties will go under the hammer on a single day means that you will know immediately if you have acquired a property or sold it if you were a seller. This means that the prices actually obtained on the day for the properties being auctioned is dependent on the people attending to bid as opposed to the actual property value. It is this that can create the opportunity to obtain a bargain.
- Completing contracts with UK expats– When the hammer comes down the property is yours and there will be a solicitor on hand to legalise the transaction. This is where having stuck to your planned buying price limits will let you leave the auction as a happy buyer.
- Funding arrangements for UK expats– Usually you will leave a deposit on the day of 10% of the purchase price of the property with the remainder coming due usually within 28 days. This period is intended to give you time to sort out your funding arrangements. Unless you have the full amount of cash available you should never bid on a property if you will need finance to complete the transaction unless you have satisfactory confirmation that this finance will be provided.
- Price guides for UK expats– Due to the large number of properties being sold at property auctions and the sales records they keep of previous auction prices, the guide prices shown on the auction listings are now fairly representative of the likely selling price and therefore do provide a good guide as to what the property will sell for. However, they are only a guide and properties can go for a lot less and often for more.
- Value for money for UK expats– The popularity of property auctions initially stemmed from the fact that most properties sold were sold at below their open market value. This being the cost of convenience and speed of sale for sellers. Many of the properties are sold as distressed sales or where properties have failed to sell on the open market. Because of this, real bargains can be acquired and for those expats looking to buy distressed property for renovation, property auctions can be ideal sources for acquiring property.
- Remote bidding to suit UK expats – with most auctions houses it will be possible to make arrangements with the auctioneer to accept your internet bid or telephone bid and may in some cases handle the bid on your behalf. This is a service that will suit expats, but arrangements will need to be agreed in advance.
Extra costs for the UK expat to consider over the buying price
If you have made a successful bid for a property you will know that you will have to make a 10% down payment with the balance becoming due usually within 28 days. However there are other costs that will apply that you will need to take account of which we have outlined below.
- Auction hose administration fees – You can expect the auction house to charge an administration fee for running the auction and for processing the relevant information and documentation associated with your bid. These administration fees will vary somewhat between the different auction houses but fees in the range of £200 plus might apply.
- Expat legal fees – Once you have bought the property you will need to engage a solicitor to help you to complete the necessary paperwork and close the deal. Solicitor charges can vary considerably and will relate to some degree to the value of the property but £800 to £1500 may be a reasonable guide. It should be noted that it is usually worth engaging a solicitor in advance bidding and benefit from their advice.
- Property survey report – Depending on the condition and type of property you intend to purchase you may wish to have the property surveyed to check for structural defects. This may be something you should consider doing prior to bidding. Survey costs will depend on the surveyors charging structure and the extent of the survey work required but around costs of £400 to £600 for a basic survey and more for a full structural survey.
Expat buildings insurance – Once you sign your contract the property becomes your responsibility so you will want to protect the property with buildings insurance. Buildings insurance will provide protection for fixtures, fittings and the structure of the building from the likes of fire, flood, vandalism and theft, which is a risk if the property remains unoccupied for any length of time. A typical buildings insurance policy for a property rebuilding value of around £250,000 may cost in the region of £250 per year.
Stamp duty – All property purchases within the UK are subject to stamp duty. This is a tax levied by the UK government and is applied in stages and at rates governed by the value of the property. This tax is not included in the guide price provided in your catalogue so it is essential to consider this as a cost on top of what you bid. Note that if you already own a property in the UK then an additional 3% is added to each band rate as shown below.
For the year to 4 April 2018, the stamp duty rates are:
|Property Purchase Price||First Property||second or more property|
|Up to £125,000||0%||3%|
|£125,000 to £250,000||2%||5%|
|£250,001 to £925,000||5%||8%|
|£925,001 to £1.5 million||5%||8%|
The table shows the band widths and rates that currently apply. If for example you bought a property for £500,000 as a first property then stamp duty would be calculated as follows:
The first £125,000 of the property value is zero rated and is free of stamp duty. The next £125,000 of the property value would fall into the second band and be charged at 2% or £2,500. The remaining £250,000 of the property value would be charged at 5% or £12,500 giving the total stamp duty due on the property to £15,000. Stamp duty must be paid when your solicitor has completed the transaction.
There may be other things you might have to cover depending on the type of property you have purchased but these are the main ones.
Typical costs for Expats selling a property at auction
If you are disposing of a property through an auction house you should check the charges that the auction house will apply. Some typical charges are as follows.
- Auctioneers commission – this will usually be around 1.5% to 3% + VAT of the selling price but is only paid when the property successfully sells. Try negotiating with the auction house if your property is in the higher value range where you might get this towards the lower end or less. There will usually be a minimum selling fee of anything from £1,500 upwards so if a low value property such as a garage were to be sold for say £10,000 the percentage commission rate would not apply and the auctioneer will charge the minimum selling fee.
- Auction legal pack – This is crucial for the successful sale of a property at auction as it contains all the legal information on the property such as land registry documents, deeds, searches, property information questionnaires, lease documents and tenancy agreements relating to the property. Costs for preparing an auction legal pack for a freehold property can be anything from £200 upwards. For a leasehold property the cost of obtaining the management information pack from the freeholder/landlord could add another £200 or more.
- Catalogue Fee – most auctioneers will request an upfront catalogue/entry fee of around £200 + VAT or more but it may be possible to postpone this payment until after the property has successfully sold. This is essentially your fee for advertising your property.
Expat mortgages and other expat financing considerations
As an expat, if you require finance to be put in place to purchase the property beyond the deposit payment then some serious thought needs to be given to this to ensure you are not left in financial difficulties after a successful bid. Expat mortgages can be particularly difficult to obtain and the criteria that mortgage lenders now set are quite stringent. Because of this, expats should not consider bidding for a property before they have properly researched the expat mortgage market and established with some certainty that an expat mortgage will be made available to them.
Even when it is known that this is possible, it would be a very rare case indeed for an expat mortgage application to be processed within the 28 day time limit to make the final payment. We have therefore listed below some possible things to consider when looking at how to finance your property purchase.
- Cash – Where cash is available to make the full purchase then things are certainly much simpler. If the property is of low cost then this may work for many expats. However, in most cases and with higher value property, not many expats can simply draw the cash needed from their bank accounts. Thought then needs to be given to other sources of generating cash that do not involve the new property. Below are some possibilities.
- Other owned properties – where the expat already owns property with good levels of equity, then one possibility is to take out an expat re-mortgage on that that property to release the cash you need. If this is done before you move to buy a property at auction you would have the cash in hand to complete the auction purchase.
- Buying to renovate – if your plan is to purchase a property cheaply and renovate it for selling on or renting and you have the initial cash to purchase the property you could buy the property for cash and then take out a bridging loan to do the renovation work. Once completed and re-valued, you could take out an expat mortgage on the renovated property for up to 75% of its value and repay the bridge. Depending on the extent and quality of the renovation work it is possible that the remaining cash from the expat buy to let (BTL) mortgage would replenish most of your initial cash outlay setting you up to look at another property project.
- Expat Bridging loans and bridging finance – A bridging loan is a short term lending solution used by buy-to-let (BTL) landlords to help them bridge the funding gap until longer term funding can be arranged. Typically bridging finance can be taken from between 3-12 months and will be redeemed once the clients exit route, usually an expat mortgage is secured. These can be arranged very quickly which makes them suitable as a short term way to complete your property purchase. Before deciding on this type of financing you would be wise to consider the following:
- Arrange your expat mortgage – it is vital before committing yourself to an expensive bridging loan that you have agreed firm terms with a lender to provide you with an expat mortgage to take out the bridging finance.
- Failure to secure an expat mortgage – Consider what your situation would be should all potential lenders reject your expat mortgage application and you are left with a property that you cannot refinance while you have a very expensive bridging loan arrangement in place. This could destroy all of your plans and might force you to sell the property in a hurry and not be able to recoup the money you have spent, leaving you with a major deficit.
Some tips for expats buying at auction
- Finding an auction – once you have decided on the area you are interested in, contact the auction houses that cater to that area and ask them for a catalogue and subscribe to their mailing list. There will usually be at least four weeks between the publication of the auction catalogue and the auction taking place.
- Study the catalogue – study the catalogue and make a shortlist of properties you’re interested in. You can then contact the auctioneers and arrange an appointment to view the properties that interest you.
- Consider a survey – once you have identified a property that really interests you consider having it surveyed if you have any doubts about its condition. If you are not successful with the bid you will lose the survey costs but this could be a lot less that buying a property that has hidden problems.
- Check the legal pack – The auctioneer should give you a legal pack for the properties you’re interested in and this should be checked carefully to make sure everything is in order.
- Expat finance – review your financing arrangements and make sure you have proper confirmation that they will be honoured.
- Auction day – Arrive early and remind yourself of the maximum amount you want to spend on the property. Once the auction starts it is very easy to be carried away and bid beyond your intention. Set your maximum price and stick with it.