If You Buy a UK House at Auction, When Do You Pay?

The thrill of winning an auction is priceless, but with this victory comes the legal responsibility to meet various financial requirements, including paying for the house itself. As such, you may wonder how much time you have to pay for a property after an auction, specifically in the UK.

If you buy a UK house at auction, you typically have 28 to 35 days to complete payment after making a deposit. The type of property you bought and the kind of auction you participated in can also affect the amount of time you have to pay.

An auction deal is done once the gavel hits the desk — at that point, you become obligated by law to pay for the property. Failure to do so can result in legal action and heavy financial penalties. Read on to learn more.

How Much Time Do You Have to Complete Payments for an Auctioned House in the UK?

The length of a buyer’s payment deadline depends on two major factors: the type of property and the kind of auction involved. That said, there are two main types of auctions, namely: traditional auctions and modern auctions. Expectations and demands of payment vary between these two kinds of auction.

The Traditional Auction Payment Plan and Deadline

Traditional auctions (also known as unconditional auctions) are the most popular type of auction. The major difference between traditional and modern auctions is speed. In a traditional auction, things move quickly, and sellers expect buyers to start making payments once the hammer hits the desk.

In this type of auction, you are required to pay a 10% advance immediately after the auction. Failure to do so can attract legal and financial retaliation from the seller or auctioneer. You’ll typically have a 28-day deadline to complete payments after making the initial deposit.

Modern Auction Payment Plan and Deadline

In a modern auction (also called a conditional auction), the hammer doesn’t bind you to auctioned properties immediately, unlike in a traditional auction. This gives buyers more time to think about a property before completing the exchange. In addition, buyers are not obligated to pay a 10% deposit immediately.

If you win a modern auction, you’d first enter a contract with the auction house by paying a reservation fee. Reservation fees vary among auction houses, but they’re typically within the range of two to four percent plus VAT (value added tax) of the purchase price. However, the minimum reservation fee for all auction houses is £5,000 + VAT.

Next, you’ll have 28 days to exchange contracts with the auction house and pay a deposit. Then, you will get another 28 days to complete your payment. This is ideal if you wish to pay with a mortgage, as most lenders need time to gather funds and process the mortgage.

Within the first 28 days, you can even decide against following through with acquiring the property if you see reasons to — without getting any legal repercussions from the sellers. In that case, you’ll only lose your reservation fee.

Important note: Auction houses can deceive you into paying more reservation fees than you should by not stating their fees clearly. To avoid this, carry out sufficient research before getting into any auction.

What Happens if You Don’t Have the Money to Pay for an Auctioned House in the UK?

The type of property you are interested in influences the legal and financial consequences you can face for failing to pay for an auctioned house in the UK. If the property doesn’t have so much value, the auctioneer may decide to avoid any legal hassles.

Payment for auctioned properties is done in two categories: the deposit and the completion plus extra fees. If you miss your payment deadline, you will get a legal note reminding you of the payment and the consequences of not paying. This note, which often comes from the seller’s solicitor, will also give you a 10-day ultimatum to complete the payment, including all necessary fees.

The legal note is your final chance to avoid further legal or financial measures against you. If you still fail to complete payment after 10 days, the seller is permitted to take lawful action. These actions include cancelling deposits or reservation fees and charging you with costs for damages and depreciation.

Cancelling Deposits or Reservation Fees

Most sellers — and, without a doubt, most buyers — don’t want the troubles associated with a legal process or dispute. Some sellers might decide against taking legal action if you fail to pay completely. However, should that be the case, you shouldn’t expect to get back your deposit, no matter how much it is.

Cost for Damages or Depreciation

The value of a house depreciates over time. By not completing the purchase of an auctioned property, you put the seller or auctioneers at risk of losing money as the house spends more time on the market.

Aside from the risk of losing value and being sold for less than its actual worth, putting the house up for sale again and maintaining it until a new buyer comes knocking will also cost money.

In all, not completing the payment for an auctioned house would cost the sellers a whole lot, and no seller or auctioneer would gladly take it. In many cases, they would rather exercise their legal right to place these extra expenses on you.

This would mean closing up the price difference from your pocket if the house is eventually sold for a lesser price or taking responsibility for the house if it gets damaged before a new buyer pays for it.

Sometimes, not paying for an auctioned house can be more costly than buying the house. You can avoid such a situation by making good financial plans before going into an auction. However, if you cannot complete payment for an auctioned property, try to resolve the matter diplomatically with the sellers before they take legal action.

If you’re lucky, they might give you more time (there is more likelihood of this if you have made substantial efforts to pay or have a clear plan to complete the payment within a reasonable amount of time). If it’s too late for diplomacy, contact your solicitor to find the best way out.

Legal Consequences

There may also be legal consequences if you can’t pay for a house you won at an auction. You’re still responsible for paying, and the seller might take legal action against you.

According to the Sales of Goods Act 1979, the auction hammer falling creates a legally binding contract between you and the seller in traditional auctions. While not every seller may pursue legal action, it’s always possible if you can’t pay for the house. Depending on your situation, you might need to speak with a lawyer.

When you don’t pay the deposit or reservation fee by their deadlines, both the seller and auctioneer could sue you for the money. There’s likely no chance you’d win since you participated in the auction and technically agreed to a legally binding contract. If you signed paperwork for buying the house, there could be expensive consequences for not paying.

However, you should have at least 28 days to pay, which can be enough time to get a mortgage. Legal action can only be taken against you if you miss the payment deadlines. If you made a deposit already, you will not get it back.

What Financing Options Do You Have to Pay for Your Auctioned House?

If you don’t have ready cash to enter an auction, you can use other financing options like getting a mortgage or a bridging loan. Let’s discuss these below.

Mortgaging

Getting a mortgage to pay for an auctioned property is quite easy. All you have to do is ensure you have a good financial history — as well as financial records or statements to prove this — then start the process early enough before the auction.

Time is important when paying with a mortgage, especially if it’s a traditional auction where you have a shorter time frame to complete your payment.

I would recommend going for a modern auction if you are paying with a mortgage. Lenders need time (usually six weeks) to arrange a mortgage, and a modern auction affords them a reasonable period to put everything in place.

If you’re paying with a mortgage, you’d need to attend the auction with a mortgage in principle as evidence of affordability. A mortgage in principle also lets you know how much you can afford to bid at the auction.

Mortgaging Is Not for Every Property

Not every property can be acquired with a mortgage. Lenders always want to ensure that the auctioned property is worth their investment. Hence, they won’t give you a mortgage for a house that is not in great condition.

You can only get a mortgage for a house that’s in habitable condition. To get a mortgage for any house, it must have a functional kitchen, bathroom, and heating — you won’t get a mortgage if these basic amenities are lacking. Properties with legal disputes, rot or damp, short leasehold, and structural defects, among other issues, are generally considered unmortgageable.

Getting an Auction Bridging Loan

A bridging loan is a good alternative to a mortgage. Getting a bridging loan is easier and faster than compared to a mortgage. While a typical mortgage would take about six weeks to go through, it takes 14 days to qualify for an auction bridging loan once you are proven eligible and have a clear exit plan.

Therefore, with a bridging loan, you won’t have to worry about strict payment deadlines. However, bridging loans have a higher interest rate than a typical mortgage. Deadlines for repaying an auction bridging loan vary from one month to two years — sometimes even three years.

You can use auction bridging loans to purchase various properties, including mixed-use properties, residential properties, commercial properties, and even non-property assets like artworks and machines.

What You Need To Apply for an Auction Bridging Loan

You’ll need the following documents to get an auction bridging loan:

A valuation report
Proof of existing plan, which helps lenders determine if they are making the right investment choice
Proof of income
A business plan (for commercial buyers)
Proof of experience in developing properties (if you have plans to develop the property before reselling it)

Frequently Asked Questions on Paying for Auctioned Houses

What Happens When I Win an Auction?

When you win an auction, a staff member of the auction house will take you to a contract desk to start the legal process of buying the house.

You’ll have to provide personal and legal/formal documents such as national insurance numbers, house addresses, and proof of residency.

These documents will be used for electronic verification before you pay your deposit and sign a memorandum of sale. You will get a copy of the memorandum of sale, and the auction team will write to your solicitor to confirm your purchase.

Do I Need To Pay Any Extra Fees Apart From the House Sale Price?

You’d have to pay additional fees besides the original house price. Some extra payments include an administration charge, buyer’s premium, and legal documentation fees.

When completing the purchase process, your solicitors will also pay fees like the balance of purchase monies. Also, look out for charges listed as part of the special condition of sale in the legal pack.

What Is an Administration Fee?

An administration fee is the amount that covers the cost of putting together the requirements for buyers involved in the auctioning. It’s standard practice to include this fee in buyers’ fees.

The cost of this fee varies for different properties and auction houses. It could either be fixed or a certain percentage of the sale price.

Final Thoughts

Knowing when to pay for an auctioned house in the UK can help you make suitable plans to meet payment deadlines and save yourself some trouble.

You can avoid the financial and legal consequences of not completing payment for an auctioned house by using appropriate financing options such as getting a mortgage or a bridging loan.

Consider all financial and legal aspects of buying an auctioned house in the UK before starting the process.

Alec Hanson

Co-owner of Just Do Property Ltd, Alec has over 10 years experience investing in rental properties.

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