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The Risks of Buying at Auction (and How to Avoid Them)

The Risks of Buying at Auction
Buying property at auction can be a fantastic way to secure below-market deals, but it also comes with risks. From hidden structural issues to legal complications, many investors have learned the hard way that not every auction purchase is a bargain.

To help you make informed decisions, we’ve outlined the most common risks of buying at auction—and how to avoid them.

Non-Mortgageable Properties

One of the biggest risks at auction is buying a property that cannot be mortgaged. Lenders won’t approve a mortgage for properties that:
  • Have no functioning kitchen or bathroom.
  • Suffer from serious structural damage.
  • Have issues with legal ownership or unclear title deeds.

    • How to Avoid This Risk:

    – Check the property condition before bidding.

    – If planning to use a mortgage, confirm with a broker that the property is mortgageable.

    – Use bridging finance as an alternative if needed.

    Related: Auction Finance Solutions

    Hidden Structural Issues & Costly Repairs

    Many auction properties are sold as seen, meaning there’s no chance to negotiate repairs with the seller.

    Common Hidden Issues:

  • Subsidence (cracks in walls, uneven flooring).
  • Damp and mould problems.
  • Roof damage or missing tiles.
  • Unsafe electrics and outdated plumbing.

    • How to Avoid This Risk

    Arrange a property survey before bidding. Factor in a contingency budget for unforeseen repairs. Visit the property in person—don’t rely solely on auction listings.

    Restrictive Covenants & Legal Pitfalls

    A restrictive covenant is a legal restriction on how a property can be used. These can prevent you from:

    • Extending or converting the property.
    • Using it for rental purposes.
    • Making structural changes.

    How to Avoid This Risk

    Have a solicitor review the legal pack before bidding. Check for restrictive covenants that could affect your investment plans.

    Auction Fees & Hidden Costs

    The hammer price is not the final cost. Many investors forget to budget for additional fees, such as:

    • Buyer’s Premium (1%-5% of property price).
    • Auction House Admin Fees.
    • Legal & Survey Fees.

    How to Avoid This Risk

    Read the auction terms carefully. Use our SDLT Calculator to check tax obligations.

    Planning Permission & Article 4 Restrictions

    Some properties, especially HMOs, require planning permission. If an area is under an Article 4 Direction, you may need planning approval before converting a property into an HMO.

    How to Avoid This Risk:

    Check if the property is in an Article 4 area before bidding. Look at local planning rules for any restrictions.

    Related: HMO Licensing & Planning Guide

    Inability to Complete Within 28 Days

    Most auction properties require completion within 28 days. If you can’t secure funds in time, you could:

    • Lose your deposit (typically 10%).
    • Face legal action from the seller.

    How to Avoid This Risk

    Get pre-approved finance before bidding. Consider bridging loans if a mortgage takes too long to arrange.

    Case Study: A Costly Auction Mistake

    Investor Profile:

    • Ben, an investor, won an auction property for £180,000.

    What Went Wrong?

    • He didn’t review the legal pack and later discovered the property had a restrictive covenant preventing it from being let as an HMO.
    • He underestimated refurbishment costs, which doubled his expected budget.
    • His mortgage lender refused funding because the property had no working kitchen.

    Outcome:

    Ben had to resell the property at a loss and pay additional legal fees to remove the restrictive covenant.

    Closing Note

    Buying at auction can be profitable, but only if you plan ahead and do your research.

    • Check if the property is mortgageable.
    • Review the legal pack for restrictive covenants.
    • Budget for extra costs beyond the hammer price.
    • Arrange auction finance in advance to avoid delays.

    FAQs

    Q1: Can I get my deposit back if I change my mind?

    Ans: No. Once the hammer falls, your 10% deposit is legally binding.

    Ans: No. Auction properties are sold as seen—it’s your responsibility to do due diligence.

    Ans: You could use a bridging loan to meet the 28-day deadline and refinance later.

    Ans: Always get a solicitor to review the legal pack before bidding.

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