Why Buying a Repossessed Property Can Mean You Get Way More For Your Money

by from money.co.uk, Last Updated: 17 April 2014

If you can put aside the emotive mental images conjured up by the words 'repossessed property', then there are some real bargains to be had. You just need to know where to look and how to go about buying.

House On Hand In Blue Sky

What is a repossessed property?

A repossessed property is a home that has been seized by a lender after the previous owner defaulted on a mortgage or other finance arrangement. Once a lender has taken ownership of a property, they will seek to sell it quickly in order to recoup the money loaned to the previous owner.

Shouldn’t I feel uncomfortable about taking advantage of someone else’s misfortune?

It’s natural to feel a little squeamish, but it’s also important to remember that the picture is not as black and white as it may seem. For one thing, simply repossessing a property does not automatically clear the previous owner’s debts. The proceeds of any sale will go towards clearing the debt – so, as unpleasant as it may seem, actually selling the property is an important step towards financial recovery for the previous owner.

It is also important to remember that not all repossessed properties come on the market after families fall behind on mortgage payments. Many are new builds and flats which are taken over by lenders when property developers fall on hard times.

In short, the history of these properties is not necessarily a reason to pass up an opportunity to pick up a bargain.

Why are repossessed properties cheaper?

This comes down to the way lenders approach their sale. That is, whilst they are legally obliged to seek the ‘best possible price’ in order to serve the interests of the previous owner, they will rarely do anything to prepare the property for sale. Lenders want to shift repossessed properties quickly, so will usually price them below the market rate and offer them for sale immediately. As a result, repossessed properties often sell for up to 30% less than might be expected through a private sale.

What are the downsides?

It is likely that properties offered for sale after repossession will require some serous TLC. It is not uncommon for previous occupants to strip out all fixtures and fittings before handing over the keys, so some refurbishment is likely to be necessary. It is important to factor the costs of this work into the overall cost of buying the home.

How do I find repossessed properties for sale?

The favourite hunting ground for property investors is the property auction. However, auctioneering is a skill in itself: read our guide, How to buy a property at auction. Auction sites offering repossessed houses for sale include:

In addition, the recession and related rise in repossessions has seen a number of specialist websites spring up. These include:

You can use these sites to search for repossessed properties in your area, and sign up for alerts as new properties become available.

Finally, it is worth keeping an eye on the local papers and making contact with estate agents. Estate agents may well sell repossessed properties, but not advertise them, so drop in or call to ask what is available.

How do I select the right property?

The process of finding and checking out a repossessed property is really no different to investigating a home for sale on the open market. It is vital that you do your research to make sure there are no nasty surprises down the line. Here are some key pointers:

  • Get a mortgage agreement in place:
    As with any property purchase, it is best to get a mortgage agreed in principle before you start your search in earnest. Start by finding a mortgage deal that works for your circumstances or seeking advice from an independent, whole of market broker if you're not sure where to start.

    Once you have found a deal that you are eligible for and that you are satisfied with, start the application process. This will give you a good idea of how much you will be able to borrow, whilst having a mortgage agreed ‘in principle’ will give you a head start if you find a property you want to buy. You might also want to consider bridging loans for contingency auction finance.
     
  • Understand the risk of being ‘gazumped’:
    In most cases, repossessed properties will not be taken off the market even after you have an offer accepted. It is important to understand that the lender will have no qualms about accepting a higher offer, even after you pay for surveys and legal work.
     
  • Get a thorough survey carried out:
    It is possible that a hidden and serious defect has prevented the previous owner from selling, and that this has ultimately led to repossession. If is vital that you have a full structural survey carried out before committing to buy a repossessed home.
     
  • Factor in any ‘reconnection costs’:
    In many cases gas, electricity and telephone services will have been disconnected. Remember that you may have to pay to have them reinstated.
     
  • Check your credit rating after you move in:
    Whist unlikely, it is possible for your credit record to become mixed up with that of a previous occupant. Given that they have probably defaulted on a mortgage, this would be certain to have a detrimental effect on your ability to access credit. Check your record a few weeks after moving in, just to be sure.

 

Responses

add your response here

hi, just looking for some advice. We put an offer in on a repossessed house, we had all finances in place and we don't need to sell another house. However, our offer was rejected for a much lower offer, £15000 less, as they were cash buyers. I thought they had to, by law, try get as much as possible for the house. Is this right, is there anything that we can do?

by housebuyer, 12 Nov 2013

ahh for shame, your post has been up for awhile... my point is... pray tell, why on earth you though someone would give you advice on here ?

by Jigitty, 1 week ago
add a comment

Not really, The bank has a duty to treat the lender fairly and so s/he must balance the best price with the speed of sale/ likelihood of completion. A mortgage offer may sometimes not complete due to circumstances beyond your control. In any event, the cause of action would exist for the benefit of the previous owner, who is protected by the FCA, not you.

Here is how you find another repossession quickly

https://www.youtube.com/watch?v=k4TrX_LkLPY

by antho37, 1 week ago
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