What are the risks to buying a repossessed house?
House repossessions are more common than people expect. Between January to March in 2024 there were 5,182 homes repossessed by a bank or building society* because of people failing to make their mortgage repayments. This is up 28% from the previous period the year before.
With the number of homes being repossessed by mortgage lenders increasing, this can mean that there are more homes being sold by the lenders at a cut-price. This can be a great opportunity for buyers, but before making a purchase, they should understand some of the risks associated with buying a repossessed property.
Risks to buying repossessed property
Damages to the property
One of the biggest risks to your purchase is the condition of the property. As the previous owners of the property will not be involved in the transaction, limited information will be available on the property. This is why, when the purchase is being made, there will be no enquiries raised, as there will be no title guarantee.
It may also be unknown how long the property has been left vacant, meaning it may have worsened or been left in a poor state because of a disgruntled previous owner. The properties utilities may have also been disconnected from the property, leading to conditions like damp or mould appearing within the home's foundations.
We always recommended that you view the property as much as you can. Looking at the property several times will help you understand its condition. This way, you can be sure you are happy with what you are buying.
We also recommend that you have a comprehensive survey conducted on the property. This will help identify any hidden issues or conditions it may have.
Time Frames
Unlike the traditional conveyancing process, the transaction of a repossessed property is similar to buying a home at an auction. The mortgage lender will be looking for a quick sale and will have the properties listed with an estate agent or auction house.
The lender will set out a timeframe for the completing the purchase. This can range from 21 to 28 days, but may vary in some situations. Failing to meet the deadline can result in the transaction being cancelled or falling through.
The short turnaround for completing the purchase is not for the faint-hearted, and you must be committed to the purchase.
To make your purchase easy, be organised, have your documents ready and make sure you have a good solicitor. A good solicitor will know the deadlines and understand the process for repossessed properties.
Competition
A repossessed house presents a good opportunity for cash buyers, first-time buyers, property investors or those simply looking for a good deal due to the lower pricing. However, this can also mean increased competition. More interest and competition in a property can mean that the purchase price for the property can be significantly higher than advertised if you are placed into a bidding war.
To be on the safe side, it is recommended that you have a set budget agreed upon and a limit to your offer if you find yourself in a bidding war. It may also be worthwhile to have other properties in mind in case your offer is not accepted.
Gazumping
If you have an offer or bid accepted by the property owner, this does not mean you are no longer competing for the property.
With repossessed homes, after an offer has been accepted the property will be listed as “subject to contract”. Meaning that your offer is not legally binding. This can open the door for other prospective buyers to make an improved offer whilst you are going through the conveyancing process. This is referred to as “gazumping” or being “gazumped”.
The mortgage lender, who owns the property, will be trying to sell the property for as much money as possible. If a higher offer comes in whilst you are conducting the legal documents they may accept it. Forcing you to make a higher offer or leaving you out of pocket.
Administration, costs and complications
Finally, there may be some additional things that you should take into consideration as part of purchase. Although, these may not affect your overall purchasing experience they may occur one the transaction is complete.
We previously mentioned that the utilities may have been disconnected from the property when it was first repossessed by the mortgage lender. When reconnecting the utilities to the property, the providers may charge you a fee to have the connections put back into place. You may also be asked for proof of ownership, so it is recommended that you have this ready to show them.
There have also been instances where the previous owners of the property have not updated their address leading to bailiffs arriving to the property. If this happens to you, you will need to provide evidence that you now own the property.
It is considered best practice to have a budget set to pay for any appliances that have been removed or are missing. These appliances may have been taken by the previous owners and can be costly to replace.
Contact our repossessed conveyancing team
Purchasing a repossessed property can have its benefits, but it is also a complicated process. When buying a repossessed home it is essential that you have an expert conveyancing solicitor or conveyancer. A professional who understands the complexities and potential pitfalls of this conveyancing practice can make all the difference.
The residential property team at Holden Smith Law has been assisting clients with their home moves since 2019. Our repossessed property solicitors has a deep understanding of buying repossessed properties and can guide you through the process.
Begin your journey by contacting our team. Contact our team by calling one of our offices or by completing our online enquiry form.
