Buying a Repossessed House in the UK

Find out how to get a mortgage on a repossessed house, how the process differs from buying a traditional property, and what financial risks are involved.

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Home Property Types Buying A Repossessed House In The UK
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Jon Nixon

Reviewer: Jon Nixon

Director of Distribution

Updated: March 18, 2024

How we reviewed this article:

Our experts continuously monitor changes in the financial space and work closely with qualified mortgage advisors for factual verification.

March 18, 2024

Following the economic impact of the pandemic, it’s estimated that 22,300 properties could be repossessed in the UK in 2022. The majority, if not all, of these will then go on the market as lenders look to limit any further losses by selling them as quickly as possible.

Oftentimes this equates to a cheaper price tag, think up to 30% cheaper. But what does opting to buy a repossessed house mean for a mortgage? How does the process differ from buying a traditional property and what other types of financing are available? This guide answers all of these questions and much more.

How do lenders sell repossessed properties?

The time factor in this scenario means lenders explore other ways of selling a property, for example at an auction, rather than solely relying on estate agents. But careful not to lose any more money on the property, it’s unlikely the lenders will invest in making it marketable.

While that often translates to a lower valuation, it could also mean the property is in poor condition, has hidden deficits and requires utility reconnection. It’s important to weigh up these factors when deciding whether to purchase a repossessed property, and consider whether you’re willing to spend money on any renovations yourself.

Buying a repossessed property at an auction

Auction houses across the UK list repossessed properties and will typically share what’s available a month prior to an auction. Within that time frame, you can visit a property, get familiar with its legal pack and organise a home survey. It’s important to do a good level of research given the former owner won’t be on hand to share any extra information.

Should you then choose to bid – either online or in person – and ultimately buy the property, the sale will need to be finalised within 28 days and 10% paid as a deposit that same day. If you already have a mortgage in principle, that can be used to secure the sale. If not, that could be an issue as a mortgage can take between two to six weeks to process.

This is where auction finance can help. A type of bridging loan, it can be processed within 14 days but will come with a higher interest rate than on a conventional mortgage and will need to be paid off within 1 to 24 months, usually via a remortgage or resale. This allows you time to transition onto a longer-term lending solution.

A broker would be able to help navigate the process of buying a repossessed property at an auction and support on either applying for a mortgage or auction finance.

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How to buy a repossessed house using a mortgage

Similar to buying a traditional property, it’s important to assess your finances and determine how much you can afford to borrow before applying for a mortgage.

Once you have an amount in mind, you should:

  1. Reach out to a broker – they will be able to help you assess which type of finance you need – bridging loan or standard mortgage – depending on the situation with the property you’re looking to buy (as outlined above). They’ll also look at the amount you want to borrow and whether this is feasible. Once this is done, your broker can identify the right lender to apply with who will offer the best possible terms.
  2. Prepare the paperwork for a mortgage (or bridging) application and submit it to the recommended lender.
  3. When you have a mortgage in principle, talk to your broker about which auction sales or estate agents might have repossessed property listings.
  4. Once you’ve found a property, organise for the various surveys, viewings and research to take place whilst calculating whether any discount on price is worth the additional investment that might be needed to bring the property up to standard.
  5. Organise for the mortgage agreement or alternative finance to be sent to your solicitor to begin finalising the paperwork and exchange of contracts.

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Lending criteria for this property type

As with any mortgage application, a lender will be wanting reassurance you can afford what you’re asking to borrow.

They will then take the same approach to verify eligibility by examining your:

The fact that you’d like to purchase a home associated with a repossession shouldn’t have any bearing on you as the new potential owner.

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Alternative types of finance for a repossessed property

If you don’t think a mortgage or auction finance is for you, there are some other financing options you could consider.

  • A business loan: If you plan to use the property for commercial purposes – perhaps you want to convert it into an office or run a specific business from the premises – this could be an option. Business loans usually have a term time of up to 15 years and rates tend to be higher at 4% to 20%, depending on whether you opt for a secured or unsecured loan.
  • Development finance: A short-term, interest-only loan, this form of finance funds the purchase and renovation of a property; ideal if you’re planning to refurbish your repossessed property. In this scenario, the lender delivers the loan in stages as the project progresses and requires proof of a repayment plan – typically a remortgage or sale – for the end of the term.
  • Remortgaging another property: This would release equity you could use to purchase the repossessed property but you’d need to meet the specific lender requirements and assure them you can afford both properties.
  • Personal loan: In specific circumstances a personal loan can be used to buy property, but they do come with higher interest rates – between 6% and 28% – depending on whether you opt for secured or unsecured. A broker would be able to talk you through the advantages and disadvantages of buying a property this way.

Get matched with a repossessed property specialist

Buying a house is a complex process. Buying a repossessed house is even more so, which is why it’s worth teaming up with a broker specialising in repossessed property purchases. Familiar with the intricacies involved in the various forms of financing available, a broker will save you significant time; something which is critical in this scenario. They’ll also be able to share what lenders are looking for, what makes for a great deal be it on a mortgage or other type of finance, and what additional factors need to be considered to ensure a property’s repossession history doesn’t affect your home ownership.

Reach out today to be connected with a broker specialising in repossessed properties. You can call 0808 189 2301 or make an enquiry here.

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FAQs

Yes, but you’d need to wait until a year after the repossession has taken place to apply. Even then, unless three years have passed and you have a significant deposit you’ll likely find it hard to get approved for a mortgage. The more time that passes, the greater your chance will be.

Any debt should be connected with the previous owner rather than yourself but it’s worth regularly checking your credit rating to be sure. And if any mail should arrive for the previous owner, send it back stating that “the owner is not known at this address.”

No. Any owner of any type of property can default on their mortgage which means the market contains a multitude of different properties including new builds.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!

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Pete Mugleston

Mortgage Advisor, MD

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