Why Auctions Could Offer Buyers an Advantage as Mortgage Costs Rise

Higher mortgage rates are putting pressure on affordability in the current housing market, although buyer searches are still up compared to a year ago, so people are still looking.

What those higher rates are doing, though, is reducing buying power by a not-insignificant amount. This creates a market where buyers are active but need to make their money work harder. And for many buyers, that could make property auctions worth a closer look.

Buyers have more choice

The current market gives buyers more room to compare properties. There are plenty of homes available, and sellers face more competition for attention than they did during the tighter markets of recent years. Add to this the Bank of England’s latest report, which says transaction numbers are down on last year in some areas, while sales are taking longer to complete.

This allows buyers to take their time, work out their budget and look beyond the usual route of finding a property through a high street estate agent.

Auction properties can offer different opportunities

Property auctions cover a wide range of stock, so a buyer might find a standard flat or house, a property requiring refurbishment, a tenanted investment or a home with some form of development potential.

This can open up opportunities that don’t always appear in the standard sales market. Some auction properties need work, have unusual circumstances or require a buyer who is comfortable taking on a project. All these things can affect the price.

A lower purchase price can help with affordability

Higher mortgage rates make the total cost of borrowing more important, and mean the purchase price itself deserves close attention. If a buyer can find a property at a sensible price, the smaller mortgage required can make a difference to monthly repayments. It may also reduce the amount of interest paid over the life of the loan.

That doesn’t mean timed auction properties are automatically cheaper. Competitive bidding can push a final sale price above the guide, and buyers need to understand that a guide price isn’t a valuation or a guaranteed purchase price.

The advantage comes from having another route into the market and being able to judge each property on its own merits.

Buyers can see the legal position before bidding

One useful feature of an online auction is the preparation involved before the auction starts. Auction lots usually come with a legal pack, which can include the contract, title information, searches, special conditions and other documents relevant to the purchase.

This gives buyers a chance to understand what they’re actually purchasing.

Online auctions can make the process more focused

Traditional property sales can take months to reach exchange, but auctions work differently. With a traditional or unconditional online auction, the successful bidder enters into a binding contract when the lot is sold, with a deposit and fixed completion period usually forming part of the process.

That gives buyers a much clearer timetable, though it does mean preparation has to happen before bidding.

Mortgage buyers need to plan ahead

Higher mortgage rates make it risky to bid first and worry about property finance later. Buyers need to know their maximum budget before the auction and leave enough room for costs such as stamp duty, legal fees, surveys, mortgage fees and any work required on the property.

They should also check the auction conditions for the lot. Some properties may have short completion periods, which can make finance more time-sensitive than in a standard purchase.

There can be less competition outside the mainstream market

When mortgage costs rise, some buyers step back from the market altogether, while others become more selective. This can create opportunities for buyers who are prepared to consider properties that need work, involve unusual circumstances, or don’t fit the typical estate agency model.

Auction buyers can also search across a much wider range of properties before deciding where to focus. The key is to stay disciplined, as a wider choice only helps if the buyer knows what they’re looking for.

The auction route rewards preparation

For buyers with a clear budget, finance in place and the willingness to do their homework, online auctions can offer another way to find property. The process is more structured, the legal information is available before bidding and the buyer knows that a successful bid comes with a clear commitment.

That won’t make higher mortgage rates disappear. However, it can give buyers another way to approach a market where preparation and financial discipline have become more important than ever.

Auction House London provides in-depth guides for buying and selling property at auction, and if you have any questions about the properties and land currently available for auction, then contact our team of auction professionals. If you’re already looking to buy residential or commercial property at auction, browse through the lots listed in our forthcoming auction. Or, if you have property you want to sell, why not see how much it could be worth in an auction with a free valuation by Auction House London.