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Could repos, ex-local authority or auction properties be the answer for first time buyers?

Written by: Paloma Kubiak
As first time buyers struggle to get a foot on the property market, could auction, ex-local authority or repossession properties be the answer?

There are a number of government schemes to help first-time buyers get on to the property ladder.

But each comes with its own set of restrictions and criteria, such as the Help to Buy Equity Loan which only applies to new builds and the Help to Buy ISA which offers a 25% government bonus but is only valid on properties costing up to £450,000 in London (£250,000 elsewhere).

So, what are the other options for fledgling homeowners?

Auction property

Auctions are a great way of bagging an unusual property as well as a possible bargain. But they are not for the faint-hearted.

If you see something you like, there’s no fooling around as once that hammer comes down, you have to buy it. There’s no turning back.

With auction properties, it’s essential you do your homework and that means pouring over the legal pack.

You also need to get a mortgage agreement in principle from your lender before you go because if you’re successful you’ll need to provide a 10% deposit on the day and you have to complete on the deal within 28 days.

It’s essential to visit an auction property in advance, preferably with a builder and surveyor, even if you lose any fees if your bid is unsuccessful.

Dominic Field, director of property investment firm Temple Field Property, says as a first time buyer, auctions can seem quite fun but there’s a danger you may get carried away.

“It can be emotional and you have to be very disciplined about price and stick to it. If you’ve done your research, you’ll know what the property is worth.

“There’s always a chance you’ll get over bid so while it’s not a prime strategy, if you’re looking at a property and you’re in no huge rush, you can choose the time of year such as Christmas.”

The HomeOwners Alliance says you can find an auction by contacting auction houses in the area of the property, then you can ask for a catalogue and subscribe to the mailing list.

It also advises getting to an auction early so you can find a spot you’re comfortable with and the auctioneer can see you.  Make sure you have everything you need, such as a passport or utility bill and proof that you can afford the 10% deposit.

Top tips for buying a property at auction

Ex-local authority 

An ex-local authority property was previously owned by the council or local authority and is now owned by a private buyer.

The first point to note is that ex-local authority properties tend to be cheaper than other similar housing.

Field says the price point can be around 30% cheaper than a period property and 50% cheaper than a new build.

“We’ve certainly seen the strength in pricing of ex local authority properties in the last couple of years. It’s been very encouraging in terms of investment opportunities and we think prices will rise higher than period or modern property,” he says.

As these properties are cheaper, buyers won’t need to stump up as much of a deposit.

Field adds the stigma around these properties has faded as buyers “simply don’t have the choice anymore”.

In terms of obtaining a mortgage for an ex-local authority property, it shouldn’t be any different to buying any other property. That is unless you buy a high rise ex local authority flat for instance – here it’s often more difficult to obtain a mortgage. This is because historically there was a question around the quality of the build in the post-war era with many concrete blocks falling down. As a result, some lenders put a blanket ban on mortgages for these kinds of properties.

However, another bonus of an ex local authority property is floor space. Field says they’re often much larger than new build properties and as a result, you can easily add a partition wall to create a bedroom which you can rent out to earn a bit of money, hopefully covering some of your expenses.

Repossession properties

In most cases, buyers won’t be aware they’re buying a repossession property but the clue comes when you see a lender is the vendor and that your offer/bid goes on public notice.

Field says you can get a good price on repossession properties. “Mortgage lenders have thousands of properties on their books and they want to get a sensible value and move on.”

However, he says repossession properties can have a “whole host of issues” and due to the nature, “there may have been undesirable people living there who take everything, including the lightbulbs”, but this should be reflected in the price.

Buyers may also be knocked down by gazumping – where a higher bid is placed before the contracts are signed but Fields says buyers have room to negotiate here.

On the mortgage side, the only potential issue is if you overpay. “A lender won’t worry whether a property is a repossession; it will simply look at the valuation and lend on that basis.”

Insider view from reporter Paloma Kubiak…

In June 2014, my fiancé and I were lucky enough to buy our first home – it was both an ex-local authority and repossession property in Greenwich.

Having seen around 60 properties, from flats to maisonettes to two and three-bedroom houses, we instantly wanted to own this home, it was within budget and it had huge potential, according to my builder fiancé.

Even though it was neglected and it was unsettling to see the back door had been smashed in, we fought hard to get it.

As Dominic Field alludes to above, we were gazumped numerous times until we went over our budget and just had to let it go. Rather than being stripped bare, the previous owner had left a lot of items.

A few weeks later, we were called by the estate agent to say the property had come back on the market at the original price.

We hesitated whether we should go through the process all over again but because we had already built up a working relationship with the conveyancer and surveyor, and we had the agreement in principle, we decided to give it a go.

It wasn’t easy; in fact it was one of the most stressful times of my life (apart from planning our overseas wedding) and the higher offers kept coming through.

We ended up overpaying by £7,000 so once the valuation came in, we had to make up the shortfall from our buffer fund for renovation works.

We slept on an air bed and had BBQs for three months as we couldn’t afford a new boiler or furnishings, but it was worth it as it was ours. We also contacted the estate agent to ask if the previous owner wanted to collect any more of his items which he did do.

Two years in we’re still renovating but our lovely neighbours are very patient and helpful. As for the investment potential, who knows what the future holds, but we’ve certainly found our dream home for now.

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