The answer to that is that it depends on who is actually selling. If you’re purchasing from someone who has finance problems and may be in arrears with their mortgage, it’s definitely not a good idea – mortgage lenders prefer not to lend when you are buying from owners experiencing financial hardship. However, if you’re looking at properties that the lender has repossessed and are now for sale - with vacant possession - they could be a profitable purchase.
The reasons for repossessions are many, but they all come down to the current home owner being unable to maintain their finance. This might be because they’ve lost their income, a divorce whether neither party is able to maintain the property alone or a family fallout where joint heirs exist.
Realistically, the lender just wants their money back - with no regard as to whether the current owner gets anything out of the deal or not. That’s why repossessed properties often sell for well below market value.
Where to find repossessions
Many repossessed properties are put up for auction and although the TV programmes are a somewhat rosy view of the bargains available at auction, there are good deals to be found.
Some properties are placed with estate agents, but very few agents specialise in this kind of property.
Sometimes an LPA receiver is responsible for the sale.
There’s a lot more to it than simply making an offer - and then applying for a mortgage. Repossessions are treated differently from a normal sale. The time-frames tend to be tight as the principles simply want their money out so they property is off their hands.
That means that there often isn’t time to wait for a mortgage application to be processed. Repossessions are mostly bought by cash buyers - or using bridging finance.
It’s quite usual for the agent in charge of the sale to require proof of funds before they will consider submitting your offer. This includes a positive decision from a bridger - known as Indicative Terms.
It’s not unusual for a repossessed property not to be available to view too.
Unlike a normal sale through an estate agent where the agent is very coy about offers received, repossession publish the higher off and publicly invite offers to top it, and then repeat that with the higher bids until no higher bid is forthcoming. Going for ‘repo’s may necessitate you increasing your offer multiple times.
What makes a good deal?
It’s sensible to do as much homework as possible. If a home has been repossessed it’s likely that it’s not in the best state of repair and that is often the first thing to go when people are cash-strapped. Find out as much as you can about the current state-of-repair, so you can make an informed assessment of how much it’s going to cost to get the property into decent shape either to resell or to let.
Check out the current market value of similar properties - ideally the identical homes in the same road. When you’ve added all your costs in - purchase costs, finance costs, refurb costs - not forgetting your profit - and deduct the total from the full market value - you’ll be able to work out what is a good deal and what isn’t worth it.
There are bargains to be had - but they won’t fall out of the tree on your head, you need to be diligent in searching them out and then checking them out.