Repossessed property - snap up a property at knockdown prices
Repossessions are fewer and further between, thanks to low interest rates that allow more homeowners to keep up with their mortgage repayments. The number of people forced to hand over their house keys to their bank peaked in the early 1990s when interest rates soared to 15%.
Numbers have fallen dramatically but repossessions still happen, even in today's ultra-low-interest- rate environment.
When these properties become available for resale, homebuyers and investors on the lookout for bargains are keen to snap them up because they're often priced lower than mainstream properties, allowing buyers to add value with refurbishment.
If you like the idea of a project, or want to know more about buying a repossessed home, then here's what you need to know.
Are repossessions a good investment?
The bank or building society is losing money for every day the property it repossessed isn't sold, so will be offering an attractive price. While the property cannot go for a pittance, it is discounted. The final price paid depends on who else is in the running to buy the place. Competition can get serious, and if people end up bidding against each other the price is pushed upwards.
So, yes, these properties can be a good investment but it always depends on the work that might need to be done. You will need to weigh up the costs involved.
What is a typical repossessed property?
They can be anything from run-down bedsits to high-end new-builds and everything in between. Sprawling mansions don't tend to feature very often, however. Richard Carter, managing partner at Quality Solicitors, says: "They are mostly starter homes and rental properties and need a lick of paint at the very least. Some will need massive work – others might simply need a facelift."
What are the pitfalls/risks?
Repossessed properties are often in a poor state because they have been run down under the previous owners due to lack of funds, or because they've been sitting empty for a while.
Getting a surveyor to take a look around and tot up the cost of any work required is the sensible thing to do. However, if utilities are disconnected, it will be difficult to make a full assessment.
It's all too often a case of ‘sold as seen' during the selling process, so be diligent and find out as much information as possible before committing to buy. Disputes with neighbours or guarantees for appliances (which might even be stripped out) will be absent, unlike when buying a house from owners who declare such information.
You also have to make sure there are no other ‘charges' on the property you accidentally take over, which you would become responsible for. These issues often crop up with flats whereby the previous owners ran up debts for service charges and ground rent. A good solicitor should be able to find out if any such charges apply and the information might also be included in the property's legal pack if it is being sold by auction.
Remember, it pays to do your homework. You don't want any nasty, and likely costly, surprises.
Buying through an estate agent
Most mortgage lenders are desperate to get rid of repossessions but, equally, they have a duty to get the best price possible in order to clear the debt of the former owner. Most properties are placed on the market with an estate agent, and viewings will take place in the usual way.
Repossessed homes aren't advertised as such, so you might need to do some legwork to track down the bargains. Your best bet is to get on the phone and ask what they have on their books and check the local paper.
Martyn Alderton, managing director of property sales at LSL Property Services, says: "Offers on repossessed properties are, however, sometimes publicised via standard public notices. These notices are also used for corporate sales, properties managed as part of a trust or for properties following part-exchange so don't assume all such properties are repossessed."
Carter says: "Buying repossessions can be a competitive business. Even once an offer is accepted, the property usually remains on the market. Until exchange, property hounds can swoop in to offer a better deal, so you need to move fast if you want to make it your own."
There are some websites that specialise in repossessions, such as whitehotproperty.co.uk. It lists repossessions, as well as new homes, part-exchanged and probate properties.
When a property doesn't sell through an estate agent, the bank (sometimes via an asset management company) will try to offload it at auction.
The volume of repossessed property offered at auction peaked in 2008/2009, when 32.5% of all lots sold were repossessions, according to Essential Information Group, which tracks the results of UK property auctions. Since then, volumes have been steadily declining: in the year to February 2015, only 7.7% of residential lots were repossessions.
Properties will be advertised in a catalogue weeks before the auction and you'll be able to view them beforehand.
Auctions require a 10% deposit on the day and you'll usually have to pay and complete within 28 days. If you back out, you will lose the deposit.
If you want to snap up a repossessed home, then speed is a crucial part of the process. This means being ready to go with the money. If you need a mortgage, then line one up with a bank or building society before you start looking for a suitable property.
Lenders shouldn't treat an application any differently when dealing with a loan on a repossessed property, says David Hollingworth, mortgage expert at broker London & Country. "You can, of course, come up against some cases where the property has been left in a poor condition so that could be flagged in the valuation if there's any major work necessary. But if the property is in good condition, then it shouldn't really present a difficulty for a new lender."
Lenders won't make any specific stipulations around property being purchased through auction, either. The difference is that you need to complete within 28 days.
Bridging loans are there for those who cannot get a mainstream mortgage, if perhaps the place is in a bad state of disrepair. Once the work is complete and you are able to get a home loan from a high street lender, you can do so and repay the bridge.
Cash buyers will have less of a problem when it comes to paying but will need to make sure the money is easily accessible should they win a bid.
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
The process of applying for the right to deal with a deceased person’s estate. If a person has left a will, they will usually have appointed a will executor. The executor then has to apply for a ‘grant of probate’ from the probate registry, which is a legal document that confirms the executor has the authority to deal with the affairs of the deceased. If a person dies without making a will, intestacy law applies (see intestate).
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.