Buying a repossession property

As the seasoned homebuyer will know, there are several different ways that properties come to the market, with the way they are sold, the methods of financing them and so on.

One of those ways of getting a good deal is to buy a home that has been repossessed, because they will be on the market for a shorter time, generally speaking, and, because of the type of sale that repossessions are, you can likely bag yourself a considerable bargain.

As the name implies, a repossessed home is one where a lender of the mortgage with which it has been bought has foreclosed on the owner because of their failure or inability to keep up their monthly repayments.

We've all seen the adverts on television for loans taken out against a property with stern warnings that homes might be lost if the repayments are not kept up on the loan, and this is the undertaking that anyone wanting a mortgage must accept.

While most lenders will allow a period of leniency and provide help, guidance and support to the borrower if they are experiencing difficulties with their repayments, sometimes it's not possible to achieve that laudable end and so they have to call in the loan to protect the outstanding debt.

This means that property which has been subject to a repossession order will appear on the market as a vacant possession for the prospective buyer.

It will also very likely be a lot cheaper than similar properties that are on the market, simply because the mortgage lender is only interested in protecting that portion of the property covered by the loan. The amount of that loan will be much lower than the market price since the original borrower will have provided a large deposit - so it's the remainder that the mortgage lending company is keen to protect, although they are duty bound still to get the highest price possible.

Who can purchase repossessed properties?

The answer is quite simply that repossessions are available for anyone to buy, often coming to the market through auctions, although repossessions do also appear in the particulars of the standard high street and online estate agents.

Cost benefits for first-time buyers

But, because the price is usually going to be significantly lower than a comparable property in the location, they make a good starter home for the first-time buyer. The housing market has not recently been kind to those trying to get a foothold for the first time in the property market - house price inflation has been outstripping the parallel rise in wage and salary inflation in parallel.

In turn, this means that finding the cash for a deposit and then to service the monthly repayments on the mortgage often make affordability of these types of property an impossibility.

Such properties are brought to the market at around 25%-30% of the market price, which makes it a seductive choice for that first purchase.

Inevitably, there will be things that you need to consider and factor into your decision-making when it comes to buying a repossession:

Limited property information

Lack of information - this will not be as forthcoming as would be the case for a standard purchase. In the usual conveyancing process, the seller's solicitor will ask them to fill in the TA6 (Property Information Form) and the TA10 (the Fixtures and Fittings Form), which are then passed on to you for perusal and questions. However, if the home has been repossessed, this information is very unlikely to be available.

It's also doubtful that the mortgage company responsible for selling the property will have access to information on planning consents, building regulations, certificates and warranties associated with any work done under the ownership of the previous inhabitants.

These conveyancing forms are also designed to provide the buyer with all the key information they would normally require, including suppliers of the utilities, which will be absent from such a purchase.

Unknown structural issues

Structural faults and condition - where the property is sold in the standard way, there is much opportunity to talk with the owners to glean some facts about the condition of the property, what structural issues might be causing them concern, and what the problems with maintenance might be. None of this will be available when buying a repossession.

It is therefore critical that you organise a structural survey so that you can verify the state and condition of the property before committing to purchase it.

Risk of being outbid (gazumping)

Risk of gazumping - the brutal fact is that the mortgage lender selling the property is duty-bound to get as much money as possible from the sale, so that, even if you have put in a bid that has been acceptable, the usual unwritten rules about avoiding competition with other potential buyers don't necessarily apply.

This is not underhand in the repossession market, and the mortgage lender will normally make it quite clear that, just because your offer has been accepted by them, it does not mean that they will take it off the market until you have exchanged contracts, which is the point where both you and the lender are legally obliged to see the transaction through to completion.

Therefore, you'll need to be prepared for change and to increase your original offer if you are prepared to pay a higher price than the subsequent offer that has come in - or simply walk away from the property and look elsewhere.

This makes the whole process of buying repossessions more stressful than the normal course of buying a standard property.

Contract rigidity

No contractual amendments - in the standard workflow of a transaction, during the time in between exchange of contracts and completion, while all the search information and the results of the survey come in, there is room for negotiation and amendments to the contractual details, assuming they are not significant and all parties are agreed to make them.

For repossessions, the stipulation is clear: there will be no amendments to the contract, since to do so will extend the time to the completion point and incur extra costs and time that the mortgage lender is simply not interested in spending.

Therefore, the contract must be as tight as possible but established as quickly as the rigid timescales allow, meaning that the results of the initial work to create the contracts needs to be focused and high quality.

Pre-existing property disputes

Outstanding disputes - one of the key issues that might surface in the early searches is any outstanding issues that have arisen with neighbours, the most common of which are boundary disputes, or with landlords and management companies, often with service charges to be handled and resolved.

There may also be certain caveats and restrictions which arise from the use of the property that won't be immediately obvious because of the scant information that the mortgage lender is able to provide.

Potential creditor issues

Creditors - if the original owner defaulted on mortgage payments that forced the repossession, there is always the possibility that there are other creditors wanting to get their repayment on other credit issues. Since these might be based on the property that you are planning to buy, there may be a situation where these creditors are demanding their money and sending in bailiffs which needs to be managed carefully to protect yourself.

Accelerated purchase timelines

Timescales - while the mortgage lender is looking to get as much money as they possibly can on the sale of the repossessed property, there is also the drive to get rid of it as soon as is practicable - after all, while the owner was keeping up their repayments, they were also paying interest on the loan; without those repayments, the mortgage lender's investment is achieving nothing until the money is released for other lending projects.

Typically, the lender will want a swift transaction duration that could be anything from 14 to 28 days, and very occasionally a little more.

This means that you will need to move quickly and resolve all outstanding practical and legal issues and queries you might have within the stated timescale, all of which makes this a period of increased stress and worry until the contracts are completed and you can take over formal possession yourself.

The absolute key task is to obtain legal advice as soon as you are thinking of buying a repossessed house, because you'll need to move quickly and you'll want to guarantee that they will handle your transaction proactively and swiftly.

1. Secure expert conveyancing support

This is where Homeward Legal is perfect to come in to handle your transaction, so call us and we can start the process moving, discussing all the things you'll need to know and consider while the foreshortened timescales are in operation.

The sooner your conveyancing solicitor is involved, the sooner they can start their searches and pulling the much more complex information together to fill in the gaps that would normally be provided by a standard seller.

2. Commission a structural survey

You should also organise a structural survey as quickly as possible, so that a focused chartered surveyor can give you their clear and considered assessment of the overall condition of the property and the key problems that you need to be aware of, what remedial action needs to be taken, the next steps and how much such activity is likely to cost.

They will also highlight anything of concern that needs your conveyancing solicitor to look into, such as confirmation of adherence to buildings regulations, fire regulations and other certification and warranties.

3. Establish your maximum budget

Next, set a budget. How much are you willing to pay for the property in the case where the mortgage lender accepts another potential buyer's higher offer and you would need to increase yours?

Talk to the estate agent or the auction house to find out information on the guide prices and use their knowledge to get an indication of the likelihood that you'll see your planned purchase to the exchange of contracts stage. You can also ask them to inform you if the price changes for any reason to allow you to make a decision on what to do next in terms of pushing your offer higher or not.

4. Research the property thoroughly

If the price seems to be a lot lower than comparable properties in the area, don't be afraid to ask the estate agent or auction house for more information about the property. Repossessions are not always marketed as such, and a low price could be an indicator that either it is a repossession or that there are structural problems. Being furnished with all the information will allow you to make a sound decision that works best for you.

5. Be prepared to walk away

Finally, be prepared to walk away if the transaction has soured or is not meeting your requirements any longer. There will always be other properties and other opportunities.

Have you got plans for the purchase of a repossessed property? Whatever your plans, you'll want a focused and experienced conveyancing solicitor to work on the legal aspects.

Look no further than Homeward Legal. The experts at Homeward Legal will talk you through each stage of the process so that you know what is happening at any point and why and what your role is. They are well-versed in all aspects of the conveyancing process, providing a quality conveyancing service at a fee that is great value for money!

Call to get your conveyancing quote started, or to discuss your concerns with your plans to purchase or sell your next home.