It’s possible to pick up repossessed or distressed sale properties at up to 30% off the market price. For those willing to put the work in, both on research and repairs, these can represent some of the best buys on the market. This quick briefing runs through how it works, how to find bargains, using the top auction houses and more.
Note: This is a provisional guide; we’d love your thoughts and feedback to improve it, please make any suggestions in the forum's Buying Repossessions discussion.
Homes and Mortgages Checklist
Why buying repossessions is cheaper
Sadly, recession means banks are claiming more homes from bad debts, and those willing to do up rundown pads can save £1,000s. While it’s easy to be squeamish, it's not black and white; when someone's repossessed, the debt isn't cleared, the borrower still owes any shortfall after the property's sold. The more attention these homes attract, the more cash raised, and the more of the borrower’s debt is repaid.
What type of properties are repossessed?
Some repossessions were owned by homeowners who fell behind on mortgage payments. Yet many others are new builds and flats from developers and buy-to-letters who fell on hard times. Other homes featured on these websites are not repossessions, but distressed sellers after a quick sale, perhaps because of a death or divorce.
Why are they cheap?
When a bank or building society claims back a house, it has a responsibility to get as much as it can for the property. Yet while most sellers spend months beautifying their boltholes, waiting for the right offer, banks often just price them cheaply to sell quickly.
How much cheaper are they?
Prices are anything between 10% to 30% off market value. In the past, properties did sell at even more enormous reductions, yet nowadays more punters are flocking to auctions, and savings are slightly less. Yet those willing to put in the effort and do up ropey residences can still grab deals. Another bonus is that there is usually no chain involved; often you can be inside in just a few days.
What to watch for
The downside is these properties often need a refurb. Best case is they might feel a bit cold and unlived in. Worst case is the previous owner could have stripped out all the fixtures and fittings before handing over the keys.
Thus repossession buying is most suitable for those looking for an investment and willing to do up ramshackle properties. And be sure to factor in the cost of repairs, and take a builder along to the property for some estimates.
Struggling with mortgage debt?
The top repossession property sources
Auction houses that deal in repossessions have always been the favourite hunting ground of property investors. Yet because of the recession, a number of specialist websites have sprung up too. (Please feedback on each source).
Property search website with a variety of sources, but needs more properties
Repossession search site PropertyEarth lets you speedily look for repossessed properties. Enter a town, price limit and number of bedrooms, and it reports back with homes that fit the bill. PropertyEarth doesn’t sell the places; it sources data from estate agents, lenders and property developers.
The site’s fairly new, so the number of properties is smaller than it could be; more should be added as the site grows. Not all properties are repossessions: it sells other types of chain free property, such as unsold stock from developers. You can also sign up to get email alerts when suitable residences come on to the market.
How you buy: Just click through to the estate agents or auction house and ask to view the property as you normally would.
A single seller but with a broad range of properties
Another way to track down repossessions is Whitehotproperty, a middleman which sells homes on behalf of lenders. There are hundreds of homes listed, some going for as little as £20,000 (though these could be a bit tatty). Certain properties come with incentives such as stamp duty paid or discounted legal fees.
Simply plug in a postcode, and it shows homes for sale in that area, with photos. To view a property, just click the button and enter your details.
How you buy: To view a property, just click the button and enter your details. Whitehotproperty will then arrange a viewing, and if you like it, you can make an offer.
US-owned Auctioneer worth a look
This showbiz style seller (think whistles and whooping) is part of controversial US ‘repo’ auctioneer REDC. As well as live sales across the UK, the firm auctions property online at AuctionToday.
On the downside, it adds a 10% "buyer's fee" to the purchase price, which can mean less money for borrowers to pay off their debt. Plus, some MoneySavers who’ve had dealings with REDC have bid highest only to be told it’s only a “provisional sale”, and find out later that they didn’t win.
Yet if you’re serious about buying repossessions, it’s still worth investigating … and could be a fun free day out. Be wary not to get caught up in the hype, and bid higher than you’d planned. Set a limit and stick to it.
How you buy: Browse the properties online and then either attend the live auction or the live webcast aucton on the day. Read more about bidding at auction
Wide variety of housing stock and potential bargains
If a bank can’t offload a property through an estate agent, often it'll go to auction for a quick sale (sometimes they don’t even bother with an agent). Several auction houses and agents auction off repossessions, including Allsop, MustBeSold, Savills and Barnard Marcus.
Some of these let you filter web searches for repossessed homes, or else you can just call up to see what they have on their books. Handily, Allsop also lets you search for completed auctions, a handy way to see a list of prices similar auctions have already fetched, a good way to glean a home’s market rate.
How you buy: Search for properties online or on the auction house's catalogue. If you spot a potential property, attend that day's auction. There’s a full guide to buying at auction below.
Find hidden deals before others do
Often estate agents sell off repossessed homes, but don’t advertise. Call them up and ask what they have on their books. Another way is checking the back of your local paper for announcements; some auctions get nothing but a small ad. The fewer house-hunters that know about a home, the more likely you are to get a great deal.
How you buy: Ask to view as normal.
For serious property investors
If you seriously fancy yourself as the next Sarah Beeny, there are paid-for sites that source repossessed properties for you. These are not recommendations, but are listed here in case people want to find out more.
Property consultancy PropertySecrets sends out emails with bargain properties for subscribers at a cost of £10 a month. Alternatively, Eigroup has a huge database of property auctions, but is a pricey £395 plus VAT a year. London-only Capital Property List sends out an email with a list of repossessions and homes from distressed sellers, from £25 for two months.
Quick repossession buying tips
Repossession doesn’t always equal bargain. Thus it's essential to view other properties and research the area thoroughly, as you would with any other new house.
Investigate the property.
Transport links, employment levels, schools; all need to be carefully considered. There’s a full guide to free tools to investigate a property; read the Free House Price Valuations guide.
Get a good mortgage deal.
Know they don't have to take the house off the market.
It’s worth noting that often lenders are allowed to continue marketing the property, even after they’ve accepted an offer, leaving the chance you'll be gazumped. This could mean survey and legal fees down the tube. Of course this is common in all types of property transactions. But it’s worth completing as soon as possible.
Don’t buy a wreck!
Your best bet is to visit the property several times, crucially, with a solicitor or surveyor. There are properties out there for under £20k, yet you must get a survey done to reveal any horrors before making an offer.
This is particularly important with repossessions; there could well be hidden defects that meant the seller was not able to get rid in time to pay off the debt. Plus, there are no existing owners to pass on helpful tips about the temperamental boiler and how next door’s disputing the height of your hedge. Locate a surveyor on the Rics website.
Check out what the situation with residents is.
Do confirm that the previous tenants have handed over the keys and the property is unoccupied. If the repossessed property was previously owned by a buy-to-let landlord, it is possible that the property may be resold with a tenant in situ.
A small fly in the ointment is that when you move in, some services, such as gas and electricity, may have been cut off. Most energy companies will switch them back on for free, but you may have to pay for phone line reconnection.
Check your credit rating.
It’s worth checking your credit rating a few months after you’ve moved in, just to make sure your finances don’t get incorrectly mixed up with the previous owners’.
While this is highly unlikely, you should be checking your credit file regularly anyway; the Credit Rating guide shows how to instantly get all your credit files for free.
Check the post.
Do keep an eye on the post for red debt collection letters addressed to the previous owners. Give the companies a call and let them know that the previous owners have moved on, just to make sure they don’t turn up on your doorstep.
How to bid at auction
Not all home auctions are for repossessions. Yet because auction homes generally sell for slightly less, they are more likely to be flawed, repossessions or from distressed sellers who want a quick sale. Do remember, this is a brief guide; property is very expensive and you need to know what you're doing before bidding. There are a number of good books on the subject that are worth reading beforehand.
Step One. Do your research
As always, you need to work out what else is on the market and what they’re selling for. Auctions aren’t always bargains, and can have overpriced reserves. Use the full Free House Price Valuations guide to evaluate properties.
Go to a couple of auctions first, to get a feel for the process and raise your confidence. Even if you’re not interested in bidding, watching the pros and chancers at work can make for a fun afternoon.
Step Two. View the property
Catalogues are usually released a month before the auction, allowing time for buyers to view properties and get surveys. Sign up to email lists and catalogues for all local auction houses so when they arrive, you can view as early as possible.
This way you can make an offer ahead of the auction, for a little over the reserve price. As the seller is obviously ready to make a quick sale, they could do the deal there and then.
And always get a survey. Professional investors might take a chance and not bother, but as auction homes are more likely to have defects, it’s crucial. Of course, the risk is you’ll fork out for a survey and not be the winning bidder. Yet if you’ve decided that auctions are for you, the idea’s that you write off the cost of a few surveys, with the aim of saving overall.
Step Three. Get finance in place
Now, unless you're lucky enough to be a cash buyer, you’ll need to get finance in place BEFORE bidding. Call your broker and get a 'mortgage promise', which lets you know the maximum amount you can borrow. Yet this is not a formal mortgage offer; most lenders will not give this until you have found a specific property and they've sent a valuer round.
Do be aware that, if the mortgage company disagrees with the valuation, they may not approve the deal. Again, for this reason, it's especially important to get a full survey and valuation before bidding. For info, see the Cheap Mortgage Finding guide.
Auctions require a 10% deposit on the day; take a cheque book and two proofs of ID. You then have between 14 days to six weeks, depending on the auctioneer, to produce the readies and complete.
Miss the deadline, and you lose the deposit. If you need to shift your current home to buy the new one, the sale should be completed before you bid. Thus auctions are a better bet for first time buyers or investors.
Step Four. Decide a bidding strategy
Before heading to the sale, read the sale conditions thoroughly, and get a pack with details of deeds and leases from the auction house. Then decide a firm max price, and don’t overshoot it in the heat of the moment. Be sure to factor in the cost of any refurbs into the price, as once the hammer’s comes down, you’re stuck with it.
And as with eBay auctions, don’t bid early; come in late to avoid pushing the price higher. If you lose, don’t be disheartened; many folks don’t win first go. And even if you don’t bid, you can always make a cheeky offer on an unsold lot.