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.
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.
Where can I buy repossessed properties?
The favourite hunting ground for property investors is the property auction but auctioneering is a skill in itself. 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:
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.
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.
Buying a property, whether it is in need of modernisation, refurbishment or if it's in perfect condition, will require you to take out a policy to match. You can compare prices here for a home insurance product that will keep you from forking out for any unexpected expenses that might come your way.
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. Not sure how to check your credit rating? Read our guide to find out.