Buying a Repossessed House

Important to know

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

After repossession, many repossessed properties are bought and eventually mortgaged to new buyers by lenders. Many mortgage lenders are eager to sell the property quickly, which can significantly affect the price because lenders are primarily interested in recouping the outstanding debt rather than in holding onto the property. Therefore, you can save money by buying a repossessed house. 

Whether you choose to buy a repossessed house through an estate agent or in an auction, you can complete the purchase process within a short period. This not only saves time, but also allows you to enjoy the benefits of your new property sooner, all while potentially saving thousands of pounds. Several factors must be considered before buying a repossessed property. 

This article is a guide to help you make an informed decision. By understanding the process, you can approach the purchase with confidence, knowing you’ve done your due diligence.

What Is a Repossessed House?

A repossessed house is one that the lender seized because the owner was unable to meet up with their mortgage payments for a period or reneged on the mortgage terms. This can happen for various reasons, such as job loss, financial difficulties, or other personal circumstances.

In cases like these, the law allows the mortgage lender to sell the property and recoup the outstanding amount. After repossession, the property is put up for sale, and the proceeds are used to offset the debt as well as other expenses incurred. 

Ways to Buy a Repossessed House

Lenders are eager to sell off the property quickly so as to get back their money. Therefore, you can buy a repossessed property through the following:

#1. Buying at Auction

This is a fast and effective way of buying a repossessed house and getting a good deal. These properties are put for sale and advertised for one month. This gives enough time for prospective buyers to view the property and make the necessary financial arrangements to complete the buy. 

Many buyers use bridging loans to finance the purchase of property sold at auctions. A bridging loan as a short-term loan, help a property investor finance their property purchase pending when they are able to get a traditional mortgage

The reason why a bridging loan is ideal for the purchase of auction properties is because processing a bridging loan is faster than a traditional mortgage. Once they are able to secure the property, they will then remortgage and pay off the bridging loan.

#2. Buying Through an Estate Agent

Many buyers get to purchase a repossessed property from estate agents. Repossessed properties have negative connotations. Therefore, estate agents do not market them like other properties in the market. 

How do estate agents sell repossessed properties? Agents have a list of buyers who they know might be interested in the property. They, therefore, contact these potential buyers whenever a repossessed property is available.

This is why it can be beneficial to establish a relationship with estate agents if you are interested in buying a repossessed property. They can keep you informed about new properties that become available and help you navigate the buying process. 

Can I Get a Mortgage to Buy a Repossessed House?

Like any other standard property, you can finance the purchase of a repossessed property by applying for a mortgage. However, if you are buying the property at auction and require a bridging loan to finance it, it can become more complicated. Lenders will still approve your mortgage, even for a repossessed property. 

Before approving your mortgage, lenders will assess if you can afford repayments. Other things that can affect the likelihood of getting approval include your credit rating and the amount of deposit you can put down. Once you are able to meet all the criteria laid down by a lender, getting approval for your mortgage should not be a challenge. 

If you require a short-term loan to purchase the property, you may need to get more information about bridging loans and how it works. It will be ideal to also speak with an independent mortgage broker who will help advise on the best options based on your peculiar circumstances. 

Benefits of Buying a Repossessed Property

There is no doubt that there are benefits to buying a repossessed house. They include:

#1. Fast Sale

Lenders are always eager to recoup their money after repossessing a property. Therefore, the buying process is usually faster. To secure a speedy sale, most lenders utilize auction houses. 

#2. Saves Cost

You can save significant costs when you buy a repossessed property. The costs of most repossessed properties are 20-30% lower than their full market value. 

However, before jumping in to buy because of the lower cost, it is crucial to note that some properties may not be in good condition. Therefore, a buyer will need to calculate the cost of renovations before deciding whether it is worth buying.

Additionally, the buyer may need to address legal issues as well as any other outstanding debts associated with the property. It’s important to be aware of these potential risks and challenges before making a purchase. 

#3. No Property Chain

There are no chains to delay the purchase process for a repossessed property. In the real estate industry, a ‘property chain’ refers to a sequence of linked property purchases. These linked purchases can delay the buying process.

However, buyers will purchase their repossessed property from the bank. Therefore, they will not have to wait for the sale of any property before they can finalize the deal, making the process faster for all parties involved. 

Downsides of Buying a Repossessed Property

Buying a repossessed house comes with some downsides, including:

#1. High Competition

Many property investors are seeking opportunities to buy repossessed properties, which are always in high demand. The promise of a good price bargain and fast sale makes these properties highly sought after. 

Potential buyers may have to engage in bidding wars, which can result in spending more than one’s budget. It is ideal to consider several property options and have a specific budget. 

#2. Poor Condition

Sole repossessed property may be in poor condition, requiring renovations to come up to an acceptable standard. It is crucial to inspect the property to ascertain its condition and determine the level of renovation you will need to carry out. That way, you can be sure you are getting a good deal. 

#3. Gazumping

Gazumping is a term in the real estate industry for a situation in which a seller, after getting an offer from a buyer, accepts a higher offer from a different buyer. This is common when buying repossessed properties.

Your offer can be accepted, and the estate agent may sell the property to another who makes a higher offer. Most lenders will request that the estate agent leave the property in the market even after getting an offer to see if they can get a higher bid.

Lenders are not bothered about gazumping buyers even after they have spent money on valuation and legal fees. Gazumping is, however, less common when you buy at an auction. This is because once bidding ends, pulling out of a sale attracts penalties. 

#4. Hidden Fees

For most repossessed properties, utility services are disconnected. You will need to pay to reinstate them. Other repairs that may come up may add to your overall cost.

How Long Will It Take to Buy a Repossessed Property?

The length of time required to complete the purchaser process for a repossessed house depends on certain conditions. If you are buying at an auction, it will take about 28 days to complete the process. The process is less complicated and less time-consuming because there is no property chain. 

In the event that you are buying the property with a mortgage, you will be required by the lender to value the property. Additionally, you will need a conveyancing solicitor to handle legal paperwork, even if you are buying the property with cash. 

Risks Associated with Purchasing a Repossessed Property

Buying a repossessed property comes with some risks that you may not be aware of at the time of purchase. These risks may include:

  • Planning or building control issue
  • Damages to the property
  • Restriction breach by the former owner. 

You may only be able to determine the exact issues the property may have once you can carry out a property survey. Therefore, it is ideal to assess the property’s quality before sealing the deal. 

Steps to Take Before Purchasing a Repossessed Property

There are vital stores to take before buying a repossessed property. They include the following:

  • Structural Evaluation: Having a professional survey of the property before buying it is a must. During an evaluation, you are likely to discover any major issues that can weaken the drainage systems or the building’s foundation. You should watch out for dampness, rot, Japanese Knotweed, and asbestos. The survey report will help you decide if buying the property is indeed a step in the right direction. 
  • Carry Out a Property Search: Before buying a repossessed property, ensure you conduct a local search. This search will help you ascertain if there are underlying issues with the building or the land. You will also be brought to speed as to the existence of any planning issues, contamination issues, flooding risks as well as the stability of the ground. 

Will My Credit Score Get Affected If I Buy a Repossessed Property?

Buying a repossessed house will not affect your credit scores; every debt will be registered to the original owners. However, the previous owners may have other debts aside from their mortgage that may be registered to the address.

Therefore, it is important to constantly check your credit report within the first few months of buying the property. In any event, where you discover any incorrect records registered on your report, it is ideal to speak with the lender immediately. 

Additionally, if you receive payment demands via post that may be for the previous owners, notify the companies that the former occupants no longer live there so they can update their records. 

Are there Rules for Buying a Repossessed House at Auction?

Certain rules apply when you buy a repossessed property from an auction. The buyer will be required to make a deposit that is equivalent to 10% of the property value at the auction. They are also expected to pay the remaining 90% within the next 28 days. 

Therefore, it is important to have your finances completely sorted out before bidding for a property. Many potential buyers take out a bridge loan to finance the purchase, pending when they are able to secure a traditional mortgage. 

Can I Still Buy a House After Repossession?

It is not uncommon to buy a house after going through repossession. However, you may experience some difficulties getting a lender and meeting their criteria. 

Most lenders will need you to demonstrate that your credit scores have improved since the repossession. To increase your chances of getting approval, it is best to work with a mortgage broker with years of experience in the property industry.

Factors that Can Affect Your Application After a Repossession

Many factors can affect your mortgage application after going through a repossession. They include the following:

  • Reason for the property repossession: lenders will want to know the reason behind the property repossession if it occurred within 6 years from the date of your application. They will also take a look at your credit score and evaluate the circumstances surrounding the possession. 
  • Legacy payments: If you are still owing your previous lender money after the repossession, your application will mostly not go through. 
  • Other credit issues: Other credit issues, such as bankruptcy and late payments, can hinder your progress in getting approval for your mortgage application. If you have credit issue concerns, it is best to speak with a mortgage broker. 
  • Time of repossession: You may find it difficult to get a mortgage approval if the repossession occurred within 3 years of your application. However, you can improve your chances if you are willing to put down a very large deposit. For repossessions that date back to more than 3 years, you will likely get approval, although the loan-to-value (LTV) will be up to 85%. If the repossession was more than 6 years ago, your LTV will be up to 90-95%.
  • The amount involved: If the sum involved in repossession is extremely high, getting a mortgage may be challenging and expensive. However, if the amount involved is a few thousand pounds, you are likely to find more willing lenders who are ready to offer competitive rates. 

Bottom Line

Purchasing a repossessed property is a good deal if done right. You will not only get a good deal and have a substantial amount in savings, but also will enjoy the added advantage of closing the deal in weeks. However, before you rush into buying a repossessed house, ensure you speak with an expert mortgage broker who will offer advice on the best way to go about it.  

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Luca Bertolino

Mortgage Expert

Your Mortgage Experts is led by Luca Bertolino with 20 years experience in financial services and in the property market. Through Luca’s wealth of knowledge and expertise, Your Mortgage Experts have become a trusted adviser that clients have come to rely upon for all their mortgage and protection needs.

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